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+ - The USD $24 Billion Open Source Project

Submitted by PingXao
PingXao (153057) writes "For finance nerds the era of Open Source has arrived. Pershing Square Capital Mgmt. LP is a New York financial institution that believes some of the main culprits in the current worldwide debt meltdown aren't telling the truth. On the evening of 30 Jan 2008, Pershing founder Bill Ackman wrote a letter (follow link to "This letter.") to US government, banking and insurance officials basically accusing two big monoline insureres of downplaying their risk exposure in the current credit crisis. He calculates that the monoline insurers MBIA and AMBAC are exposed to USD $12 Billion each in losses and have been trying to obfuscate that fact for some time and for the purpose of skimming phony profits and dividends. His letter is an attempt to get The Powers That Be to get off their butts and do something about it. Up until this point the reaction of the industry and the mainstream media has been to downplay the seriousness of the situation and portray the more pessimistic observers as tinfoil hat wearers. They will not be able to dismiss Ackman's concerns so easily.

Ackman's company has collected a huge number of details on these monolines and released it as an "Open Source Model" (Reuters article has a link at the bottom), and what a model it is! It consists of a 110 MB Excel spreadsheet that details almost every single CDO (Collateralized Debt Obligation) investment, both good and bad, that AMBAC and MBIA have insured. Sometimes they insured it, invested in its derivatives, and then insured it again and invested in it again! He invites anyone and everyone to look at his "source code" and dares anyone to show his results are wrong. In particular he has challenged the Attorneys General of several states and the SEC to prove he is wrong. If he is not wrong, and he has presented a mountain of data to back up his assertions, and they continue to do nothing, the financial ramifications are ominous.

One of the biggest problem with the debt meltdown thus far has been that nobody knows, exactly, what's bad, how much of it there is, and who's exposed to it. Many high finance types on Wall Street don't even know. It's the financial world's equivalent of spaghetti code. In the letter linked above, Ackman explains:

Our primary goal is to initiate what we call "Open Source Research" where all market participants can have equal access to the primary source data and construct their own views of losses without reliance on the analytical judgment of rating agencies or the bond insurance industry.
This is a first in the normally arcane world of high finance! As for the technical details of the spreadsheet, Ackman states on page 2 of his letter that

Each recalculation of this model on a typical workstation — 3.4GHz Dual Core Pentium D with 3Gb of 800 MHz FSB DDR2 RAM — benchmarks at 25-30 minutes. We run this model on an advanced workstation — twin Intel 3.16GHz Quad Core Xeon X5460's (a total of eight cores sharing 2 x 6Mb of L2 Cache on a 1333MHz front-side bus) with 4Gb of 800MHz DDR2 ECC SDRAM. Recalculating the model on the advanced workstation takes approximately 45 seconds.
Even if you're not a finance nerd, this could very well end up being the one Open Source project that affects your life more than any other, past, present or future. And even if that potential is never realized, it's still very interesting to discover that at least some of the movers and shakers on Wall Street know what Open Source is and how to make a splash with it. And it's not even software per se, it's an Excel spreadsheet with data these guys don't normally reveal to the public. Unfortunately it doesn't appear to be GPL'ed, which means we won't get to see any improvements or modifications made by others. In the end, it's a story worth checking into because how it plays out is likely to be the biggest story of any kind in any field for 2008."

Prediction is very difficult, especially of the future. - Niels Bohr

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