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Nassim Nicholas Taleb: “Bankers Designed Banks to Blow Up”

http://www.bloomberg.com/…mMd4PSxEKeE.asf

Just watched a fifteen minute interview by Bloomberg of Nassim Nicholas Taleb (The Black Swan). In the interview Taleb discusses the current crisis, robust systems, nationalizing the banks and the fallacy of using narratives of history to guide present-day policy/response.

Below are some quotes from NNT, which I’ve organized into like-nuggets of wisdom:

  • Looking at biology, things that survive have redundancy . . . we have spare parts, which is the exact opposite of leverage. . . . We have diversity and nothing is too big. Things fail early. . . . Banking is organized in a completely opposite way. . . . Complex systems have properties that banks don’t have. And biological systems have survived.
  • [We have an] Illusion of stability and then blow-ups are larger. Imagine if half-country was fed by one restaurant it’d be okay except one day people would starve.
  • Bad news travels immediately . . . This environment won’t tolerate the smallest mistake . . . I don’t know the system can allow for too much leverage.
  • People can invest in real things – they don’t have to invest in paper. . . .
  • What we have is a system of deposit where people buy a company, they borrow against it, and buy another company. . . . If that disappears we have less growth but it would be a more robust economic system.
  • The government is neither nationalizing the banks nor letting them break.
  • [With regard to banking,] separate the payment system from the risk taking system.
  • It looks like we have no control. The government has no control over what the banks are doing. The banks aren’t in control of what they are doing.
  • The press reports everything except the important stuff. September 18th . . . we had the run on money market funds and the government had to step in.
  • The situation is not comparable to the Great Depression. The situation is very different.
  • This crisis is not so much a Black Swan to me. It’s like saying you’ve got a pilot who doesn’t know about storms. . . . The Black Swan for me would be to emerge out unscathed and go back to normalcy.
  • We should be very careful when we make a historical analogy like the Great Depression because the world is not like it was in the Great Depression.
  • Capitalism is you let what’s breakable break fast.

Bloomberg also ran an article on the interview with Taleb, but it is spartan as far as quotes or insights from the actual interview.

From what I can tell, it seems Taleb views bank nationalization as similar to taking out plane hijackers. It’s an interesting, more palatable way to look at nationalization in that it frames the situation as one where the public will be harmed unless someone (in this case the government) steps in and takes drastic action.

Having said that, I don’t get the impression that Taleb is a proponent of long-term nationalization. NNT would prefer banking be structured similarly to a biological system where there are redundancies and fragile things “break early.” This system wouldn’t foster as much leverage and therefore would slow growth, but it would be considerably more robust.

This is more or less what I believe, as well. A free market is an organic, naturally forming system that is decentralized and redundant. It’s robust because market actions failing apart at any micro level will not break the entire system.

How do we get there from here? Good question.

(H/T to Jesse)

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Santelli’s Chicago Tea Party

http://www.cnbc.com/id/15840232?video=1039849853

Though I don’t think Chicago traders represent the silent majority in America (these guys make money on trading, volatility, etc.), you gotta love Santelli’s frank talk getting airtime on CNBC. Capitalist Chicago Tea Party on Lake Michigan? Sounds like fun.

Oh and I liked his soundbyte asking, “Who wants to pay your neighbor’s mortgage because they have one too many bathrooms?”

Here’s a YouTube upload of the clip (backup to CNBC’s clip):

[video:youtube:bEZB4taSEoA]

@ http://www.youtube.com/watch?v=bEZB4taSEoA

Update 2/20/09 11:05 pm: Just read this:

Gibbs Blasts CNBC Ranter ( http://www.cbsnews.com/blogs/2009/02/20/politics/politicalhotsheet/entry4816372.shtml )

Relevant quote:

“I also think that it’s tremendously important that for people who rant on cable television – to be responsible and understand what it is they’re talking about. I feel assured that Mr. Santelli doesn’t know what he’s talking about,” Gibbs said during the daily White House briefing for reporters, CBS News’ Mark Knoller reports.

The White House press secretary did not stop there. Knoller reports that Gibbs went on to criticize the objectivity of cable news reporting.

“If I hadn’t worked on the campaign but simply watced the cable news scorekeeping of the campaign – we lost virtually every day of the race….” he said.

Added Gibbs: “If I would have just watched Cable TV – I long would have crawled into a hole and given up this whole prospect of changing the country.”

After President Obama announced the details of his housing relief plan in Arizona Wednesday, Santelli, “the government is promoting bad behavior.” His increasingly outraged comments drew cheers from the trading floor where he was speaking.

Santelli then challenged the new administration, which he said is “big on computers and technology,” to “put up a website and have people vote on the internet as a referendum to see if we really want to subsidize losers’ mortgages.”

The White House is showing some awfully thin skin here. Santelli hardly said anything half as outrageous as the regular comments by Rep. Ron Paul. Mind, by “outrageous,” I of course mean, “dead on but relegated as fringe/insane/stupid by the mainstream corporate/political machine.”

Beyond that, is it really the White House’s responsibility to comment no a CNBC reporters opinions regarding their bailout bill? Is it getting stuffy to anyone else in here? Free speech ::cough:: ::cough:: …

Update 2/23/09:

Here is Santelli’s on-air address to Gibbs’ comments:
[video:youtube:SEoutkm5_Q4]

And Gibbs’ original comments:
[video:youtube:0cbsvu-4QWg]
Gibbs is a chump.

H/T to Tim for the extra videos.

Update 3/2/09: See also Barry Ritholtz’s: