Posts Tagged ‘moral hazard’

Nassim Nicholas Taleb: Video

2009, March 4

Nassim Nicholas Taleb was a successful senior trading and financial mathematics expert in a number of New York City’s Wall Street firms, before starting a second career as a scholar (PhD) —which includes his “black swan” theory of unexpected rare events.

He is advocating a “Two-Tier” Financial system, and the nationalisation of the banks;
The banks – to protect taxpayers – would avoid risk, while hedge-funds etc. would be free to take risks for profit but with absolutely no fall back on tax-funded bailouts;
He regards banking as a public utility – “like getting running water in your home”;
He regards it as not only completely unjust (“privatising profits, socialising losses”) but systemically unsustainable to perpetuate the current system with bonuses for risk takers who do not have to incur the losses. Even though he is coming from an American perspective, this is equally applicable around the world.

His Key points for the future:
* “Robustness” and “Resilience” of society is paramount;
* Robustness is incompatible with systemic, structural, and institutional promotion of risk-taking without cost (e.g. bonuses for executives of failed banks);
* Socialisation of costs, privatisation of profits not only unjust, but “fragilize”/endanger society;
* Banks are utilities, like municipal water or electricity companies;
* Public utilities are primarily for conservative purposes of common good, not for risk taking;
* Other wholly private financial institutions should be free to take on risk at a profit, provided there is a cast iron guarantee of no taxpayer-funded bailouts; both rewards and risks should be borne by the companies and their investors;

Here are some succinct video extracts of Mr. Taleb:

Bloomberg at Davos ’09: The two-tier structure:
“You can not trust banks with risks… it’s the worst of capitalism and socialism, profits were privatised, and costs were socialised”

The Black Swan author Nassim Nicholas Taleb argues that banks should be regarded as performing a function similar to that of utility companies, and should be separated from riskier investment vehicles such as hedge funds. “Banks cannot be entrusted with risk taking,” he says:
“… because I pay their bills when they lose money”

PBS NEWS HOUR Interview with Nassim Nicholas Taleb, famous economist and author of “The Black Swan” and Dr. Mandelbrot, professor of Mathematics. Both say that the present economy more serious than the Great Depression, and the economy during the American Revolution.

Nassim Nicholas Taleb BBC: the problems with banking and risks

IMedia Kentucky:

Nassim Nicholas Taleb – What is a “Black Swan?”

His books include:

‘Fooled by Randomness’: “…about luck perceived and disguised as nonluck (that is, skills), and randomness perceived and disguised as nonrandomness (that is, determinism). It manifests itself in the shape of the lucky fool, defined as a person who benefited from a disproportionate share of luck but attributes his success to some other, generally very precise, reason.”

‘The Black Swan: The Impact of the Highly Improbable’;

His own description of himself:

“What I do: I am interested in how to live in a world we don’t understand very well –in other words, while most human thought (particularly since the enlightenment) has focused us on how to turn knowledge into decisions, I am interested in how to turn lack of information, lack of understanding, and lack of “knowledge” into decisions –how not to be a “turkey”. My last book The Black Swan drew a map of what we don’t understand; my current work focuses on how to domesticate the unknown .
More Precise New Project: To “robustify” society against Black Swans –activism against those who fragilize it (bankers, economists etc.)”