With the combination of increased incidents of malicious hacking, what could be overtaxed computer networks, and now the fragile economy, it's enough to make one nervous about the state of the technology on Wall Street. MIT Sloan Professor, Andrew Lo, says maybe it's not time to panic just yet, though he does caution that "there are periods of time where we go into uncharted waters, where there's just so much trading volume, so much activity that the system can be overwhelmed for a short period of time."
As investors adjusted to a new world in which the United States government doesn't have a perfect credit rating, stocks suffered one of the worst sell-offs in history Monday, and a fresh recession seems increasingly possible. Professor Andrew Lo says: "American voters are going to realize that the political impasse has consequences that will hit them in the pocketbook."
In an unprecedented and historic move, Standard & Poor's downgraded U.S. Treasury securities one category from AAA to AA+. Experts are increasingly worried that the American economy is headed back into recession. MIT Sloan Professor, Andrew Lo says "This is the worst thing to have happened, given the weak economy we already have."
Hedge funds are facing increased obstacles, of which the regulatory requirements are just one. MIT Sloan Professor Andrew Lo says "weighed against the economic value hedge funds arguably create through the more efficient allocation of capital, must also be set the systemic risks which their herdlike and short-termist behaviour create."
For municipalities struggling to get their finances in order and for the professionals who oversee their investments, the battle being waged in Washington over the federal debt ceiling has become an urgent source of worry. MIT Sloan Professor Andrew Lo provides his input, saying "Any time you have any kind of coordinated divestiture, there's alwasy the risk of a panic and a bank run, but instead of a run on a bank, it's going to be a run on money market funds."
Dr. Lo discusses why it is now a different world, a volatile world in the stock markets, and investors better get used to it. Regulators do not have the resources or expertise to even remotely keep up with the advances in high frequency trading, leaving the individual investor at a distinct disadvantage.
In this article, the question posed is "are hedge funds good for you?". MIT Sloan professor, Andrew Lo says: "Hedge funds are the tip of the spear when it comes to new investment opportunities. They are also the canary in the coal mine when things start to break down."
Andrew Lo joins host, Neil DeGrasse Tyson, to discuss personal finance and the science of money management, guiding listeners on a non-random walk down Wall Street and revealing the neurobiology behind financial transactions. TV host Suze Orman also gives her two cents about investing, the economic meltdown, and the impact of science on the financial world.