Nassim Taleb / Universa Investments

[winston]

Nassim will be on CNBC later ..

[winston]

Not enough time for him on CNBC

1) One of the reasons we we got into trouble last year, was that we were relying on the forecast of so called "experts".

Those same "experts" are still out there forecasting. In the future, we will get into trouble again because we would again be relying on those forecasts.

2) In order to prevent another crisis, we would need to lower our debt

[blid2def]

Some feathers being ruffled recently about his Black Swan funds.

Jun 01:
Tavakoli takes down GQ, not Taleb
-- http://ftalphaville.ft.com/blog/2009/06 ... not-taleb/

Jun 03:
Tavakoli really does have issues with Taleb
-- http://ftalphaville.ft.com/blog/2009/06 ... ith-taleb/

Jun 30:
The notional Taleb
-- http://ftalphaville.ft.com/blog/2009/06 ... nal-taleb/

Probably more to come in the days ahead.

[LenaHuat]

Actually, I'm done with this man. A great academic idea comes only once in a lifetime.

[winston]

'We're in the Middle of a Crash': Black Swan

The financial system is crashing and action must be taken by the US government to convert debt into equity to produce a more stable environment, Nassim Taleb, author of "The Black Swan," told CNBC Thursday.

"You may have green shoots, whatever you want to call them, you may have temporary relief, but you are still in a world that's breaking," Taleb said on "Squawk Box."

Anything that's fragile like the financial system will eventually crash, he said.

"We're in the middle of a crash," Taleb said. "So if I'm going to forecast something, it is that it's going to get worse, not better."

The government needs to deleverage debt and not try stimulus packages that will inflate assets, he said.

"What makes me very pessimistic in not seeing any leadership or awareness on parts of government on what has to be done, which is deleverage $40-to-$70 trillion," Taleb said.

"The monkey on our back is debt," he added.

As an example, Taleb said banks should not be sending demands for larger and larger sums from homeowner in arrears on their mortgage. Instead the bank should offer to lower the monthly payments in return for part-ownership of the property.

"People would be able to start from scratch on a healthy basis. You don't want to wait for foreclosure," he said.

[winston]

Time to tackle the real evil: too much debt
By Nassim Nicholas Taleb and Mark Spitznagel

The core of the problem, the unavoidable truth, is that our economic system is laden with debt, about triple the amount relative to gross domestic product that we had in the 1980s. This does not sit well with globalisation. Our view is that government policies worldwide are causing more instability rather than curing the trouble in the system. The only solution is the immediate, forcible and systematic conversion of debt to equity. There is no other option.

Our analysis is as follows. First, debt and leverage cause fragility; they leave less room for errors as the economic system loses its ability to withstand extreme variations in the prices of securities and goods. Equity, by contrast, is robust: the collapse of the technology bubble in 2000 did not have significant consequences because internet companies, while able to raise large amounts of equity, had no access to credit markets.

Second, the complexity created by globalisation and the internet causes economic and business values (such as company revenues, commodity prices or unemployment) to experience more extreme variations than ever before. Add to that the proliferation of systems that run more smoothly than before, but experience rare, but violent blow-ups.

Our ability to forecast suffers due to this complexity and the occurrence of the occasional extreme event, or “black swan”. Such degradation in predictability should have made companies more conservative in their capital structure, not more aggressive – yet private equity, homeowners and others have been recklessly amassing debt. Such non-linearity makes the mathematics used by economists rather useless. Our research shows that economic papers that rely on mathematics are not scientifically valid. Not only do they underestimate the possibility of “black swans” but they are unaware that we do not have any ability to deal with the mathematics of extreme events. The same flaw found in risk models that helped cause the financial meltdown is present in economic models invoked by “experts”. Anyone relying on these models for conclusions is deluded.

Third, debt has a nasty property: it is highly treacherous. A loan hides volatility as it does not vary outside of default, while an equity investment has volatility but its risks are visible. Yet both have similar risks. Thus debt is the province of both the overconfident borrower who underestimates large deviations, and of the investor who wants to be deluded by hiding risks. Then there are products such as complex derivatives, which in the name of “modern finance” make the system even more fragile.

Against this background, we have two options. The first is to deflate debt, the other is to inflate assets (or counter their deflation with a collection of stimulus packages.)

We believe that stimulus packages, in all their forms, make the same mistakes that got us here. They will lead to extreme overshooting or extreme undershooting. They lead to more borrowing, by socialising private debt. But running a government deficit is dangerous, as it is vulnerable to errors in projections of economic growth. These errors will be larger in the future, so central bank money creation will lead not to inflation but to hyper-inflation, as the system is set for bigger deviations than ever before.

Relying on standard models to build policies makes us all fragile and overconfident. Asking the economics establishment for guidance (particularly after its failure to see the risk in the economy) is akin to asking to be led by the blind – instead we need to rebuild the world to make it resistant to the economist’s mystifications.

Invoking the pre-internet Great Depression as guidance for current events is irresponsible: errors in fiscal policy will be magnified by this kind of thinking. Monetary policy has always been dangerous. Alan Greenspan, former Federal Reserve chairman, tried playing with the business cycle to iron out bubbles, but it eventually got completely out of control. Bubbles and fads are part of cultural life. We need to do the opposite to what Mr Greenspan did: make the economy’s structure more robust to bubbles.

The only solution is to transform debt into equity across all sectors, in an organised and systematic way. Instead of sending hate mail to near-insolvent homeowners, banks should reach out to borrowers and offer lower interest payments in exchange for equity. Instead of debt becoming “binary” – in default or not – it could take smoothly-varying prices and banks would not need to wait for foreclosures to take action. Banks would turn from “hopers”, hiding risks from themselves, into agents more engaged in economic activity. Hidden risks become visible; hopers become doers.

It is sad to see that those who failed to spot the problem (or helped to cause it) are now in charge of the remedy. Just as the impending crisis was obvious to those of us who specialise in complexity and extreme deviations, the solution is plain to see. We need an aggressive, systematic debt-for-equity conversion. We cannot afford to wait a day.

http://www.ft.com/cms/s/0/4e02aeba-6fd8 ... ck_check=1

[winston]

Nassim Taleb will be on CNBC in a few minutes. He's probably gonna be talking above "Leverage"

[winston]

Nassim Taleb: Debt disease is killing the world economy
From Global Economic Analysis:

Reflation or not, end of recession or not, the global economic fundamentals have not changed one bit thanks to the misguided actions of central bankers. Nassim Taleb, author of the Black Swan says: ‘We still have the same disease'

Nassim Taleb: 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.

http://globaleconomicanalysis.blogspot. ... redit.html

[winston]

by kennynah » Sat Sep 26, 2009 6:11 pm in the "Books" thread

==================================

Title : Fooled by Randomness
Author : Nassim Nicholas Taleb

I am surely not to first to highlight this book in this forum...but perhaps, i might be the first to comment that it is overly rated for its insightfulness and usefulness.

In the few hundred pages, there's only one and only one resounding message; and that is,

Not all swans are white.....

Now that I have completed reading Part I in all but 1 hour, I conclude that I could have better spent this time napping my Sat afternoon away. This is because if I had read this book when I was 15 years old, I would still not have found it revelationary. The sole concept that however remote a probability of an event occurring, does not preclude it from occurring, should not be more than common sense to anyone with a normal level of intelligence.

I will skip Part II and III .... but that could be bcos I've always been very cautious about reading philosophical writings.

[winston]

by kennynah » Mon Sep 28, 2009 12:03 pm

yes...dilemma... dont read wide enough, we may not provoke sufficient thoughts and can become myopic...but read too carelessly, we risk the dangers we discussed...

so..in the end, we try striking a balance...

and so, i chose to discontinue reading nassim taleb's writing..i didnt like what i read, and i dont always quite agree with his 5cents-10cents concepts about life...