Brain Teaser

• Two jars contain the same total numbers of balls, some blacks and some whites in each. From each urn are drawn n balls with replacement, where n >= 3.

• Find the number of drawings and the composition of the two urns so that the probability that all white balls are drawn from the first urn is equal to the probability that the drawing from the second is either all whites or all blacks.

Question

Brain Teaser

• Let x be the number of whites in the first, y be the number of whites in the second, and z be the number of blacks in the second.

• +• Look familiar?– Fermat’s Last Theorem: Impossible for n >=3

Answer

Market Update

• Obamacare now in full-on derp mode• EU Q2’2013 GDP: +0.1% (after +0.3% in

Q2’2013)• Yellen testimony lives up to her reputation• Empire state mfg: -2.2 (exp. 5)• Japanese growth story continues

Week in Review

Quantitative Finance SocietyThe Great Recession vs. The Great Depression

Background

• Great Depression– World War I cements

US– Crash of 1920 brings

roaring twenties– Shallow recessions in

1923 and 1927– “Bucket shops”– Gold standard

Background

• Great Recession– Financial de-

regulation– Rise of the 401(k)– “Goldilocks

economy”– Housing boom– Shadow banking

and risk concentration

During the crisis

• Great Depression– Dust Bowl– Black Tuesday: Crash of

1929– Bank failures– Massive deflation– Stay on gold standard– 1 in 4 unemployed

During the crisis

• Great Recession– Housing crash– Lehman shock– Bank failures– Already stagnant

incomes collapse– Credit/liquidity

crisis

Reaction

• Great Depression– Bank holidays– New Deal (1st and 2nd)– Smoot-Hawley Tariff Act of

1930– Suspension of the gold

standard– Only recovered after World

War II

Reaction

• Great Recession– TARP– ZLB and QE– Austerity and beyond– …

Comparisons

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 7040

50

60

70

80

90

100

Slow and steady

Great Recession

Great Depression

Months after start of downturn

Indust

rial p

roduct

ion

Comparisons

1929 1937 1945 1953 1961 1969 1977 1985 1993 2001 200960

70

80

90

100

110

120

130

Mercantile vs. open trade Terms of trade

1929 =

100

Comparisons

1929 1937 1945 1953 1961 1969 1977 1985 1993 2001 200998.0%

98.5%

99.0%

99.5%

100.0%Foreign vs. domestic

GN

P a

s a %

of

GD

P

Comparisons

1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Sharp and cyclical world tradeSuez Canal Traffic

12-m

o M

A o

f yo

y ch

anges

(%)

Comparisons

1920 1924 1928 1932 1936 1940 19440%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

End of gold standard% of gold held by govt

% of gold held by public

Comparisons

1907 1911 1915 1919 1923 1927 1931 1935 1939 1943 1947 1951 19557

9

11

13

15

17

19

21

Paradox of thrift % of currency held by public

Comparisons

1910 1914 1918 1922 1926 1930 1934 193880

100

120

140

160

180

200

Deflation also sucks! Index of General Prices

1913 =

100

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