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The following is an excerpt from Tom Kelley, a partner at Dorsey & Whitney, LLP on a review of the book “Panic” by Redleaf & Vigilante:

Furthermore, statistical analysis of any phenomenon depends on having all of the relevant factors in the analysis and properly predicting the relationship between those factors. But you can never have all factors in a statistical analysis of human behavior, because, not all factors are quantifiable. You can never have all the relationships right I a model of human behavior, because they change. In the case of the models of mortgage behavior, when one critical assumption came unstuck (specifically, that home prices would not fall on a national basis because it hadn’t happened since the 1930s), the models became useless. The diversification in mortgage pools was illusory.

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~ by largecaptrader on June 8, 2010.

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