Wednesday, September 16, 2009

Taleb: It Should Have Been Blood, Sweat and Tears, Not Bailouts

Nassim Nicholas Taleb brings his A game as he talks to Margaret Wente at the Globe and Mail. He also makes an interetsing comment about Cananda during a hyperinflation. Is it time to buy a condo in Vancouver? :

Central bankers have no clue. In the first place, the financial crisis was not a black swan. It was perfectly predictable. They ignored the phenomenal buildup in leverage since 1980. They acted like airline pilots who'd never heard of hurricanes.

After finishing The Black Swan, I realized there was a cancer. The cancer was a huge buildup of risk-taking based on the lack of understanding of reality. The second problem is the hidden risk with new financial products. And the third is the interdependence among financial institutions...

Today we still have the same amount of debt, but it belongs to governments. Normally debt would get destroyed and turn to air. Debt is a mistake between lender and borrower, and both should suffer. But the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren. What is the effect?

The doctor has shown up and relieved the patient's symptoms – and transformed
the tumour into a metastatic tumour. We still have the same disease. We still
have too much debt, too many big banks, too much state sponsorship of risk-taking. And now we have six million more Americans who are unemployed – a lot more than that if you count hidden unemployment...

MW: Are you saying the U.S. shouldn't have done all those bailouts? What was the

NT: Blood , sweat and tears. A lot of the growth of the past few years was fake growth from debt. So swallow the losses, be dignified and move on. Suck it up. I gather you're not too impressed with the folks in Washington who are handling this crisis.

Ben Bernanke saved nothing! He shouldn't be allowed in Washington. He's like a doctor who misses the metastatic tumour and says the patient is doing very well. The first thing I would tell Chinese officials is, how can you buy U.S. bonds as long as Larry Summers is there? He's a textbook case of overconfidence. Look what happened to Harvard's finances. They took a lot of risk they didn't understand, and it was a disasterThat's the Larry Summers mentality...

...if we wind up with hyperinflation, Canada will be the best place in the world to be. You've got energy and minerals. You're not overspecialized. You're self-sufficient..

MW: Now that you've painted such a rosy outlook, do you have any adviceon how individuals can guard against losing 40 per cent of their money in this extremely risky world?

NT: My advice is that instead of investing in medium-risk securities, you should put most of your money in very low-risk securities, and a little bit in high-risk securities. Then you might get a good black swan. Also, it's good to have more than one profession, in case your ownn profession goes out of style. A Wall Street trader who's also a belly dancer will do a lot better than a trader who winds up driving a taxi.

1 comment:

  1. Nassim Taleb was on Jim Lehrer a few nights ago debating Alan Blinder. Blinder used textbook Keynesian arguments to defend the fiscal/monetary stimulus and Taleb responded that the government's actions have simply subsidized failure and incentivized risky endeavors.