LOL of the Year

[WWSituation]

http://www.soa.org/library/essays/rm-essay-2008.pdf

I think the pain in our financial markets would
have been less if more actuaries had been involved. I offer
10 reasons:

1. Actuaries understand that the distribution function for
most risks is not the bell curve or normal distribution,
but rather one of several distribution functions that
have longer, fatter tails.

2. Actuaries understand that while choosing the right
model is very important, it’s even more important to
calibrate it appropriately. A rich, long-term data set
needs to be analyzed, not just the trades from the last
few months. And extreme events shouldn’t be excluded
on the basis that “that will never happen again.”

4. Actuaries understand spirals, and seek to avoid them.

5. Actuaries are accustomed to developing values for liabilities
where no deep liquid market exists, such as
pension obligations :-?

9. Actuaries have professional standards. They should
only do work for which they are qualified.

[E. Blackadder]

9. Actuaries have professional standards. They should
only do work for which they are qualified.
In particular, an actuary should never do something for the first time. ;-)

[Will Durant]

I think the pain in our financial markets would have been less if more actuaries had been involved.

I read this sentence, and I thought of WWS.

I don't understand the basis for making this claim. Actuaries were involved in pension plans; was these plans' pain any less severe than the broader market's? No.

[American Psycho]

http://www.soa.org/library/essays/rm-essay-2008.pdfJim MacGinnitie is a well-intentioned actuarial chauvanist who believes that his brethren have integrity and competency.

5. Actuaries are accustomed to developing values for liabilities where no deep liquid market exists, such as pension obligations...
Although he is, I believe, right about the integrity, he knows next to nothing about pension actuaries, especially those in the public sector. Public plan actuaries operate with more flexiblity (at least with respect to what they are able to recommend -- sometimes legislatures make their own rules) than other pension actuaries and, unfortunately, they constitute a clear and present danger to those plans, to the participants and taxpayers, and, especially sorry to say for MacGinnitie and the rest of us, to the enitre U.S. actuarial profession. The dangers of long term underpricing of valuable benefits are beginning to become clear:

http://www.actuarialoutpost.com/actuarial_discussion_forum/showthread.php?t=146801

Public plan actuaries follow, of course, the ASOPs including ASOP 27 which can no longer be applied to discount rates (it is pre-empted by prescription) for funding and financial disclosure in the private sector. Thus MacGinnitie's item 9. Actuaries have professional standards. They should only do work for which they are qualified. They should follow professional guidance from their accrediting organizations. They must continue their professional education to maintain currency. They are subject to a discipline code.is perfectly accurate and quite useless (like an old actuary joke).

Eventually some journalist will connect the dots and discern the role of actuaries for public pension plans and then ...

[Jeremy Gold]

Jim MacGinnitie is a well-intentioned actuarial chauvanist who believes that his brethren have integrity and competency.

http://en.wikipedia.org/wiki/Chauvinism

[campbell]

It's sad, but there's nothing unique about actuaries in contrast to other financial professionals when it comes to the various interests that give incentives to mis-price risks. This wasn't a pure quantitative failure - plenty of people knew that certain assumptions being made were aggressive and underpricing risk....I guess they assumed they'd be rich and out of there before the crap hit the fan.

Sure, there can be modeling incompetence involved, but I'm not going to take incompetence as my first assumption when the money motive looms larger.

[JMO]

In particular, an actuary should never do something for the first time. ;-)
Thanks. I just found my LOL in this thread.

[Tiny Thumbs Up]

Thanks. I just found my LOL in this thread.

Thanks for pointing it out. I missed it on my first pass.

[BIS]

Regarding the ability of actuaries to prevent crises, check out "Where Was Our Leadership?" on page 2 of the October GMO Quarterly Letter:

http://www.gmo.com/websitecontent/JGLetter_ALL_3Q08.pdf

Besides offering insight into the limits of our abilities, this may be the first time you'll see actuarial skills called, "right-brained." Granted, he's not referring specifically to actuaries, but I believe the skills he' mentions are the same that MacGinnitie is thinking of.

:rimshot:

[Salzmann]

I got my laugh out of the essay in the same group, proposing an entity that would let you refinance "underwater" mortgages on favorable terms if you pledged other assets. The author used an example of someone who pledged $200K in other assets in addition to the house and suggested that they might be retirement funds or an anticipated inheritance.

First, I think most people in that situation don't have a dime to their name. And if they did, I doubt if they'd want to put other assets at risk. Finally, "expected" inheritances evaporate when the wealthy relative goes into a nursing home or writes you out of a will, and we all know what can happen to 401(k)s over a short period. There were some good articles in the collection, but that one was off the wall.

[JMO]

Don't retirement plans generally include some clause that prohibits the participant from pledging any future interest?