black swan
this is a good article about taleb
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this is a good article about taleb -
this commentary is pretty good:
We are already enslaved by global banking. We’ve been honored to serve them by paying for their losses so they could continue playing with the market and creating unpayable long term debt for the benefit of their upfront fees and monthly fees on individual perpetual debt. This is where, it seems, the models failed. They could not recognize unpayable debt.
The old rule was you could afford to buy a house 2.5 times your annual income. It required a 5% to 20% down payment. If you didn’t have the savings or the income to qualify, you rented, sharing with friends or family. Letting that rule slide, enabled exorbitant debt to be created. If you can build a home for $150,000 and sell it for $300,000 – lots of profit in the short term. But, housing is a commodity. Overbuild based on households having multiple homes, speculation, etc. and the commodity value can drop when the market is overbuilt. All those inflated, speculative assessments retreat as “real need” gets back in the picture. Families do not really need 4,000 square feet. In fact, they can get by with 850 to 2,000 sq. ft., as was done in the very recent past.
The upward trend was enabled by easy credit. The unreality of the trend could not be understood by those in its midst. Some recognized it was a bubble and danced with it, but got caught when the music stopped. So, many “smart” people have been hung out to dry along with their families in this crisis. Some may be living with their parents or in their cars.
Lotteries are long shot gambling bets, but the States that run them do have the means to pay off the winners. Bookies need enough to cover their payouts too. Their customers can be as rough as they are. Those that placed bets on Wall Street were not so lucky because there was/is no “house” that was making sure that all bets were covered. We taxpayers have had to cover big debts under threat of collapse of the financial system. This is the ultimate protection racket.
Taleb saw the risk – wrote about it. I read his books early, but really did not understand. Once the credit markets froze up, Jim Cramer explained it best when he noted on air that stocks were falling because “people were selling their good assets to cover their bad bets.” Many then learned the true meaning of illiquid assets. When everyone is selling and there are few buyers, prices drop. Markets could really drop on low volume days. Few buyers and those that had to sell took the price offered, low ball or not.
Markets had bid up the value of assets with easy credit. Too much debt was created. To avoid complete deflation, government policies are pumping out money to reinflate markets. A lot of that money is now showing up in the stock market indexes, because it has no real place to go.
Businesses are hard to start, maintain and grow. Overnight success takes 20 years or more. Persistence with intelligence can lead to financial success in relatively stable environments. There is also dumb luck. Smart or stupid? If the system has been compromised, who can really know?
We live on an experimental planet. Human skills at organizing for perpetuation of the Human Race are coming up a bit short. An evolutionary system where the strong dominate the weak sounds fine if you are among the strong, but strength is not permanent and weakness is relative. Taleb saw the problems, as did a few others. They don’t necessarily have the ability to come up with the solutions.
Max Keiser said “banks can’t make money in daylight.” Transparency may be the solution, but arguments for trade secrets and proprietary knowledge protections will block access to the smoke and mirrors.
That’s why firewall prohibitions like Glass-Stiegel were put in place. A governor on a motor keeps it from running too fast. Why? lf it runs too fast it may blow up, wear out prematurely, lead to a crash, etc. It is to manage risk. People who do not have the experience of the downside, won’t appreciate the risk.
Efforts to manage risk in cars, like seat belts, air bags, better breaks, better roads – lead to higher risk taking by those who feel safer. We are in the play out of an economic wreck. Many say we’ve never been here before – its not like the 1930’s. The finance industry hasn’t even had the Steve Urkel moment of semi-awareness to ask, “Did I do that?”
In terms of failure of intelligence, it seems that the economists are at the top of the heap because they were unable to understand the financial manipulation of markets. The statistics like CPI were modified over time to hide and minimize the inflation that was being experienced.
Kevin Phillips has documented the history of financial engineering and in: “Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism,” wrote:
“Between 1987 and 2007, debt—in all flavors, from credit card and mortgage to staid U.S. treasury and exotic Wall Street—became one of the nation’s largest, fastest-growing businesses. Over those two decades, so-called credit market debt roughly quadrupled from nearly $11 trillion to $48 trillion. This was abetted by a revolution in marketing, packaging, and propaganda—in reality, public debt wasn’t the big ballooner, private debt was. Without much publicity, the financial services sector—banks, broker-dealers, consumer finance, insurance, and mortgage finance— muscled past manufacturing in the 1990s to become the largest sector of the U.S. private economy. By 2004–6, financial services represented 20 to 21 percent of gross domestic product, manufacturing just 12 to 13 percent. And finance enjoyed an even bigger share of corporate profits.
“‘Risky’ doesn’t begin to describe this new focus in the American economy. Bingeing on debt is reckless, and financialization has a long record of being an unhealthy late stage in the trajectory of previous leading world economic powers. Moving money around instead of making things is always dicey, and the U.S. transformation has been the most grandiose to date.” http://www.bad-money.com/excerpt
Again: Smart or stupid? If the financial system has been compromised, who can really know?
Knowing that the modern financial system players only wants everyone to be eternally in debt and paying fees can help people say “Know” or the executive summary “no.”
There was a SNL sketch with Steve Martin that captures the idea:
Transcript: http://snltranscripts.jt.org/05/05lbuy.phtmlComment
