"The triumph of data over common sense"

Tonight I was listening to the May 9th episode of This American Life, an NPR program (also available in itunes and rss).

The episode is called The Giant Pool of Money and it is a simplified look at the subprime mortgage crisis that someone with no understanding of finance can grasp. I particularly liked the interviews with people at all levels of the mortgage industry and with homeowners facing foreclosure.

I would recommend it for anyone like me who has recently tried to follow this story and been stumped by the finance issues. I mention it here because of a moment about 27 minutes in where someone from Morgan Stanley describes the conflict between the gut feeling that high risk loans were unlikely to succeed with data from software that predicted that this finance model could succeed. The software analyzed data from previous years that didn't take into account recent changes in the mortgage business. Adam Davidson, and NPR correspondent, called this "the triumph of data over common sense."