Nassim Taleb on the economy and presidential candidates
By Patrick Follow Tue, 13 Mar 2012, 4:54pm 8,658 views 79 comments
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{Update: A person with Talebs'book, second addition, has said he did not think the housing bubble is a black swan. If that is correct, I stand corrected. But that adds to my argument that deregulation is what caused the housing bubble and that it was preplanned. If Taleb also believes this that is a good thing. However, it perplexes me why he would want even more deregulation if deregulation screwed everything up in the first place.}
Black Swan my ass. :) The housing bubble was not a black swan. It was a premeditated scam. The formula the banks used to misprice the CDO's made the false assumption that all mortgages could not default at once. Of course, Japan's mass housing plunge was ignored. As a risk management professor, Taleb should know this.
The expectations for the housing bubble were deliberately understated!
Ron Paul is not offering the the right solutions because he wants even more speculation in the marketplace, not less. Wake up people.
The money supply in the world is decreasing. That is why the Fed is printing so much. But the Fed is cutting back because our economy has become self sustaining in some ways. The libertarians want a massive depression. Don't be deceived.
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bgamall4 says
LOL, ROTFL. Exactly where is it decreasing? Pray tell me.
http://jessescrossroadscafe.blogspot.com/2012/03/european-money-aggregates-no-deflation.html
http://jessescrossroadscafe.blogspot.com/2012/03/monetary-deflation-not-visible-yet.html
bgamall4 says
Probably, but Nassim clearly says he is NOT a libertarian. He is actually making a conscious choice analyzing the costs and benefits.
Hyperinflation is a tail risk event, very very bad outcome. The fact that he's thinking about it is a testament to his intelligence on complex dynamic systems.
I think the Fed is unintentionally increasing the tail risks by promoting stability instead of resilience in the macro economy.
While I do understand Ron Paul's libertarian ideology is dogmatic, I can't think of anyone else who recognizes these tail risks, as Nassim puts it in his paper.
http://fooledbyrandomness.com/ForeignAffairs.pdf
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As a long time Ron Paul supporter I hear this idea all the time that some how Free markets are to blame for the current situation, when nothing could be further from the truth. In a free market system none of these sub-prime loans would have ever been made. If you allow banks to fail for making bad loans then they behave in a manner that maximizes profits while minimizing risks.
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SuperSonic says
That's utterly ridiculous. Regardless of whether banks were bailed out, they incurred (and continue to incur) HUGE losses. These loans were made precisely because of the free market.
I agree they should have failed, but that's completely irrelevent to your point. The loans had already been made at that point. You're implying that the banks made a decision that they would make these shitty loans knowing that they would fail and that it would cost their owners billions of dollars.
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SuperSonic says
Except we've allowed some banks to get so enormous that their failure can damage the whole economy. We need to break up the biggest banks for that reason. Too-big-to-fail is too-big-to-exist!
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tatupu70 says
That is beyond ignorant and naive. There is no free market in the US as both Republicans and Democrats have voted, supported, and implemented big government policies that were all but free market. Subsidies, loan guarantees, bailouts. Where is a free market in that?
In order to understand why the Real Estate market crashed you have to understand why the RE market appreciated so much. (hint hit....it wasn't the non-existent free market)
http://www.wtffinance.com/2011/04/why-did-the-housing-market-crash/
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WTF Finance says
OK let's start here: Do you agree that the banks have lost HUGE sums of money? And continue to have HUGE losses on their loan portfolio?
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WTF Finance says
I couldn't disagree with your opinions on the matter any more strongly. The facts just don't support your theory. If it was government interference, then why was it private banking and S&Ls that were the worst offenders? Freddie and Fannie were VERY late to the game.
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Jupiter, FL
Thank you WTF. The banks were forced by congress to make these loans. Anyone who thinks there is a free market in the US has just not done enough research. I am neither a R or a D. You can not name one Industry that is not subsidized in some manner by the government. Try and I will prove you wrong.
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SuperSonic says
Come on. Exactly which program was that?? If you say the CRA, then I'm done. You've been completely brainwashed.
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uomo_senza_nome says
I don't think he is that great at determining costs and benefits because he still thinks that the housing bubble scam was a confluence of unrelated events that were unseen. I say it was a preplanned scam. And I have a lot of proof. Here is one:
http://www.businessinsider.com/smoking-gun-liar-loans-were-imported-from-the-united-kingdom-2012-1
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bgamall4 says
I'm sorry, I don't see any hard proof that it's just the banks. It is a systemic issue. Why did the politicians allow this? Why was Glass-Steagall repealed? So how can you not hold the politicians accountable?
bgamall4 says
I don't think you can look at things in isolation in the macro economy. Which is why i have serious disagreements with Keynesians like Krugman.
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Nassim Taleb, I like the guy and his book.
He reminds me a lot of Peter Schiff and Meredith Whitney . People who managed to ride their Big Idea to some sort of B-list fame among the financial circles. Nassim at least has not foundered (yet) like Schiff & Whitney, but he hasn't really come up with expected new Black Swans, if you'll pardon my joke.
Lots of one-hit wonders think their genius extends to other areas and manage to get by on it. However he's not impressing me with the Paulbot talk.
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SuperSonic says
Libertarians in England thought they were going for free market when they embraced and influenced Thatcherism. After all, the churning of contracts and derivatives products were invented there as there was no Glass-Steagall. The "free market" as they saw it was working.
No politician will let all the banks fail at once. That would cause bank runs and politicians will never all that.
So all the libertarians there did was to create a monster, a derivatives monster and TBTF banks and a speculative monster that stretched from real estate to Brent crude.
I do advocate taking TBTF banks down one at a time if they cannot maintain capital requirements.
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uomo_senza_nome says
Politicians did dirty work for the banks. The reason Glass-Steagall was repealed by Gramm and Clinton was that it did not exist in the Square Mile in the UK. And the banks claimed that our nation did not have the ability to compete with the foreign competitors.
That was why Glass-Steagall was repealed.
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bgamall4 says
So why are you just holding the banks accountable? Why are the politicians not accountable? Isn't corruption basically selling democracy for cheap?
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Vicente says
LOL, I know Vincente. I think people who don't support Ron Paul have good reasons not to.
Vicente says
He's stating the black swan in the interview, which is hyperinflation. It is a tail risk to be sure, but the risk is there.
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uomo_senza_nome says
Because the source of the scam was securitization gone wild. I hold the banks and central banks as the main parties in the scam. It all happened at Basel 2 in 1998 where shadow banks were given free reign and off balance sheet accounting to hide crap loans being made ready for securitization was established.
The bankers will try to divert blame and spread it out, hoping to keep themselves out of jail. Thanks to people like you and folks who have no clue what is going on, they seem to be succeeding. Even Spencer, the rat Baccus, of Alabama, who said that regulators exist to serve the banks, and was the main insider trader in congress, will probably be reelected.
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bgamall4 says
It's utterly ignorant to think that derivatives are the problem. Derivatives or any other product is not a problem as long as the problem is allowed to correct when it should. There's absolutely nothing wrong, from a free market economic perspective, to have failure. However, there is a major problem not allowing the unsustainable business practices to fail. Propping up the unnatural business cycles and therefore creating artificial economic environments is a major problem. By doing so politicians already give the ok to interfere in the market place. When the problem then is exposed as the problem it is, it becomes the irresponsible yet "normal" to react by increasing the support for the unnatural and further propping up the unfit business practices. That's what took place all along as Republicans and Democrats increased Socialism in the RE market through increased government loan guarantees which subsidized irresponsible behavior.
It's not the free market system that caused our problems. Why? Because we don't have a free market economy. Everything that has been done was anti-free market, everything that allowed the artificial bubble to grow in size was anti-free market. Artificial low interest rates by the Fed and loan guarantees by the Government created the foundation for an unnatural Real Estate business cycle. Speculation was not the problem but the result of such anti-free market policies that rewarded financial irresponsibility not only on the sides of the banks but also for the end consumer.
Here are two links:
1. Ron Paul forecasting the Real Estate bubble, its cause and the "solutions"
http://www.wtffinance.com/2011/04/ron-paul-forecasts-the-housing-bubble-in-2002/
2. Why did the Housing Market Crash?
http://www.wtffinance.com/2011/04/why-did-the-housing-market-crash/
Only the naive and clueless are blaming the (non-existent) free market.
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tatupu70 says
OK let's start here: Do you agree that the banks have lost HUGE sums of money? And continue to have HUGE losses on their loan portfolio?
Of course the banks lost huge sums of money. But much of the losses they should have incurred have been covered up with creative accounting practices and by swapping that irresponsible debt with their friends at the Fed. The Fed created trillions of dollars to prop up the USD and the banking system. Not only did the Fed exchange newly created debt/Treasuries for bad loans but it also directly participated at Treasury auctions to prop up the demand for newly issued US Debt...
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WTF Finance says
Sorry, the derivatives are bets against the CDO's succeeding. Those derivatives should have been disclosed to the CDO buyers.
The libertarians thought Thatcherism was the start of a free economy. That is what you libertarians cannot swallow.
Also your article was bogus because the main force of the bubble was unguaranteed AAA bogus CDO's, not guaranteed Fannie and Freddie loans. Did you ever see this chart in the article I wrote WTF?
http://www.businessinsider.com/you-can-hate-fed-behavior-without-being-a-libertarian-wacko-2011-7
If you look at the chart you will see that the force of the housing bubble were non guaranteed MBS. Now, many of these became guaranteed after, after the crash of the bubble, but not before.
We are in a period of mercantilism. It will continue as long as the middle class has a little life. If that goes away, it could come crashing down. I agree artificially low interest rates allowed the bubble, but also the hot money from the Square Mile that funded the hedge funds that funded the shadow unregulated banks.
The hot money was a function of libertarian deregulation through Thatcherism.
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bgamall4 says
LOL, so you won't blame the politicians who sold themselves out but all the blame purely lies on the banks?
Excellent defense of your thesis. /sarc off.
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WTF Finance says
They made huge amounts of money in the beginning. That was the plan. Then they were bailed out and then they got their real estate back. That is predatory capitalism that the repeal of Glass-Steagall allowed!
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uomo_senza_nome says
If you just blame the politicians you are wasting your time. Here is my argument about that:
http://www.businessinsider.com/how-to-assign-blame-for-the-housing-crisis-2011-10
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tatupu70 says
I couldn't disagree with your opinions on the matter any more strongly. The facts just don't support your theory. If it was government interference, then why was it private banking and S&Ls that were the worst offenders? Freddie and Fannie were VERY late to the game.
Fannie and Freddie were not at all late to the game. The US Government interfered in the credit markets for a long time by guaranteeing non-sense loans for private entities.
You obviously do not understand how the system works. It's capitalizing the gains while socializing the losses. That's the "capitalist" system the US is based on...Private banks made the loans which the government, through GSEs, guaranteed.
Further, the current Fed interfered in the interest rate market since...1913...
If it weren't for the changes in accounting regulations, away from mark to market, BAC et al. would have been exposed in 1Q 2009 for major losses. But as long as they can mark their liabilities/assets to bubble value or hypothetical whatever they want to mark it up to. That's how the banks have remained solvent...but let's just blame it on that evil, non-existent, free market...
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WTF Finance says
Yes they were late to the game. Tatupu is right. Did you look at the chart? Look at the damn chart.
http://www.businessinsider.com/you-can-hate-fed-behavior-without-being-a-libertarian-wacko-2011-7
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bgamall4 says
Am I actually saying that? Seriously, reconsider what I have posted before.
I blame the politicians and the banks, you are placing all the blame on the bankers. That's what I don't agree with.
Secondly, equal blame is also wrong because the bankers should probably get most of the blame anyway. But the bankers can't get their way if politicians are clean.
Politicians are supposed to be the public's safeguard against monied interests. .
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uomo_senza_nome says
There is a hierarchy of blame. Bankers first. If that gets muddled the bankers win.
They want this to be muddled. without the bankers, the politicians would never have repealed Glass-Steagall. They kept crying that the UK was more advanced in derivatives and in betting. They could not compete without the repeal. Well, we see what happened.
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bgamall4 says
sure the politicians would have gotten their bribe from some other industry instead.
The politicians serving special interests is a fundamental problem that can't be ignored.
You can scream from your rooftops that bankers are responsible for everything, but nothing will change unless you cleanse the system from corruption.
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WTF Finance says
So you're theory is that the banks purposely made bad loans because, although they'd incur huge losses, those huge losses would be slightly less huge because the Federal Government would buy some of them to keep the banks from completely failing.
Basically they said--let's go ahead and make these loans that we know are losers because the government won't let us go bankrupt.
(which, by the way, isn't even true. Lots of banks failed)
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WTF Finance says
Again--the data tells a different story.
WTF Finance says
If that were the case, why did IndyMac go under? Or Lehman? Why were bailouts of the banks needed at all? Obviously many, many of the loans were not guaranteed.
WTF Finance says
I'm with you--BAC should be bankrupt because they never should have been allowed to grow TBTF. But that's the free market at work. Without government enforcing the laws and regulating business, the free market will arrive at these types of situations.
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tatupu70 says
Please share that date with us.
tatupu70 says
Because of business politics. Do you think that the regulatory agencies are there without pleasing their friends at various cmopanies? Look at WAMU as an example...No, they shouldn't be bailed out and they should have failed but the bailouts happened conveniently after JPM took them over. Now connect the dots of the financial ruling elite...
tatupu70 says
Actually, that is not the free market at work. BAC was not allowed to fail = not free market. BAC grew so big with bad business because the government and Fed encouraged irresponsible lending / borrowing = not free market.
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tatupu70 says
No, that's not my theory. That's how the game is played. Sure, many banks failed but you have to connect the dots between banks failing, the ruling financial elite (Fed) and what banks failed and who benefitted from their failure. It's not a theory when that is how the big government game is played.
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OK--tell me again then. Why did banks make loans they knew would fail?
We both agree they lost lots of money, right?
Regardless of whether they ultimately went bankrupt or not, we agree they lost a ton of $$, right?
Why? Why did they purposely lose their owner's money??
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WTF Finance says
I'm sure you'll say Krugman is an idiot, so forget all of the opinion part of the article. Just look at the charts. Fannie/Freddie origination decreased from 2003-2007, while private origination took off. The data speaks for itself.
http://krugman.blogs.nytimes.com/2010/06/03/things-everyone-in-chicago-knows/
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Krugman pointed out troubling data coming from the housing market in 2005.
And Hinderaker, soon to be a CATO Board Member (argh!) had this to say in response:
http://www.powerlineblog.com/archives/2005/08/011131.php
Tee Hee!
Well, at least Hinderaker didn't pull an NRO and remove all their 50s/60s pro-Franco articles from the internet.
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uomo_senza_nome says
True, but no other industry had the capability of hurting main street in the way that the bankers could.
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tatupu70 says
Are you on the Fox payroll? Just kidding, but it was Fox who focused on the CRA and the GSE's as the main players in the housing bubble when it simply was not true. You looked at the chart right? Or are you afraid to look. It tells it all. Follow the money.
If you think the financiers and hot money were not behind the banks doing bad behavior you know nothing. The banks even today have 20 percent of their deposits from international hot money.
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Jupiter, FL
The bank is the government. Simple as that. Reduce government and you reduce he need for the central bank. Eliminate exotic finacial instruments and you don't need regulations. Regulations are for socializing losses and privatizing gains.
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bgamall4 says
I don't believe in any grand conspiracy theories if that's what you are implying.