Scholes' other BS model

Old man Scholes wants to "blow up" the entire $531 trillion derivative market as a way to "prevent crisis". While I'm all for market-to-market over mark-to-model this plan is like curing a brain tumor by shooting yourself in the head. It would cause a complete collapse of the global economy. Of course this plan is just crazy enough for Washington to consider it. Oh, and that pricing model you spent years developing to capture arbitrage, yeah well we're nationalizing that bad boy too.

clipped from www.bloomberg.com Myron Scholes, the Nobel prize- winning economist who helped invent a model for pricing options, said regulators need to “blow up or burn” over-the-counter derivative trading markets to help solve the financial crisis. The “solution is really to blow up or burn the OTC market, the CDSs and swaps and structured products, “One way to do that, through the auspices of regulators or the banking commissioners, is to try to close all contracts at mid-market prices.” “Take the pricing mechanism from the desks in banks, which have made a huge amount of profits over the last number of years, and facilitate price discovery,” Scholes said. A total of $531 trillion in outstanding derivatives contracts traded over-the-counter as of June. Scholes was a partner in Long-Term Capital Management LP, the hedge fund whose $4 billion loss in 1998 set off a near- panic in financial markets and prompted the Federal Reserve to orchestrate a bailout by 14 lenders.