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Technical skill is mastery of complexity, while creativity is mastery of simplicity.
Sir Erik Christopher Zeeman (1925–2016), British mathematician.
Ultimately, this book is about credit risk and its management using modern-day tools not available to our forefathers. While there have been huge benefits from these improved credit intelligence capabilities—for both lenders and borrowers—there have also been downsides. In particular, excessive reliance on empirical models. Indeed, a significant driver behind the 2007/08 financial crisis was not only the low-risk credit ratings provided by the major rating agencies (especially for home loans and associated traded securities); but, also credit scores and ratings used by major credit providers, that had been developed during a benevolent economy when housing prices only ever went up. Logical such low-risk ratings then seemed, even though mortgages’ nature had changed from fixed-term to (almost) revolving credit. Entire economies were affected—personal loans, car loans, credit cards, store credit—where loss estimates were unprepared for the sea change of falling home loan prices. Stability returned, but ‘student’ has since replaced ‘home’ in the loan worry-scale.
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