Nassim Taleb: "The Fed's Business Is Price Instability"

Tyler Durden's picture

As we try to figure out how it is possible that the market can still be trading down on a massive POMO day, here are some thoughts from Nassim "Fat Tails" Taleb, who has obviously ignored the surgeon general's warning not to discuss the Fed. A visibly agitated Taleb, who may or may not have overindulged in the coffee IV drip earlier, was in full form on Bloomberg TV with Erik Schatzker lamenting that the Fed is not a publicly traded entity with options so that one can buy some seriously out of the money puts on Brian Sack. No choice words were spared, or Black Swans strangled, during the filming of this clip.


Taleb's thoughts on Bernanke and the Fed:

"It seems to me, from what I see, that these people [Bernanke] do not understand risk.”“Did [Bernanke] see the crisis? Did he see the accumulation of hidden risk in the system? No. He was flying the plane and he crashed the plane…"

"[Bernanke] underestimated risk. He is sort of risk-blind from his analysis of the situation before the crisis when he deemed it was the right moderation."

"[Bernanke] reminds me of LTCM people. They had brilliant people with great academic records and they blew up the fund and almost blew up Wall Street….So here we have a symptom that you notice in economic academia of the use of the wrong tools that underestimate risk. I don’t mind someone saying this is a policy, these are the risks, these are the returns, let’s see how it works. Bernanke does not seem to be taking that approach. He is someone who talks about returns without talking about risk. It’s identical to a pilot who is talking about speed -- not talking about safety. The measures he is using, this quantitative easing, may work but should it fail the risks are humongous.”

Taleb commenting on former Fed governor Randall Kroszner's statements that QE2 makes sense:

"This guy [Randall Kroszner] was governing the Fed? It's good that he moved to the University of Chicago. He reminds me of those people that sell out of the money options and claim that it's safe. This guy is not only claiming that its safe but that it’s the thing to do…He should definitely stay at the University of Chicago and not get involved in economic life."

Taleb on the risks of the central bank's quantitative easing:

"Talk to a German, particularly someone who has studied Weimar Republic and you’ll understand what the risks are."

"You short an out of money option on hyperinflation…The point is that you may print, print, print or do these devious methods to hide that you’re printing, but it won’t have any effect. Just like a ketchup bottle that you pour and nothing comes out. And then you make a statement like Bernanke saying you have evidence that this is working, that there is no risks, and then suddenly, just like an out of money option, the whole ketchup coats your French fries, everything, the whole table, your face, everything.”

“Let’s go back to the basics. [Bernanke] did not see the risks in the system before. Why are you listening to him when he talking about what to do? Why would are you listening to him?”

“Assuming there is a very small risk, who is bearing that small risk? Retirees. The debasement of the currency is something that would be borne by those who were the victims will not be the ones who benefited from the crisis. The thing is that you’re trying to print money to bail out those who have made mistakes by taking a mortgage that they shouldn't have taken…and by bankers. Who is paying the price? Retirees. And you’re debasing the currency and people who hold your currency. It’s an insult to those who have bought dollars in the past."

Taleb on what he believes the Fed should be doing instead:

"It’s not a Fed problem, it’s a deficit problem."

"People want a free lunch. It reminds me of people who lose money in the market and when I was an option trader, people would call me up and ask for a magic way to make their money back. That’s what the Obama team is doing. Instead of accepting that we have a risk problem, we have lost money, and you don’t double up with future generation’s money either by increasing deficits and or debasing the currency. You have to face the saying that there is no free lunch."

“The main problem was risk in the system. You cannot solve a risk problem by risky methods. You have to accept…We’re forcing the Greeks to reduce; ok you spent money you didn’t have; now you’re going to cut down. We're going to have to face the same thing. And you’re going to take pain, it’s painful, but that's life."

"The Fed's business should be price stability; unfortunately their business seems to be price instability."

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Mr Lennon Hendrix's picture

What will you have wished you had done before you die?

CheapKUNGFU's picture

If we are talking women? I guess I would have to say 'filled  more input gaps'

Economy? Bought more gold at $325.00



tmosley's picture

Behead a central banker with an axe.

kiwidor's picture

you may get your chance shortly...

mojine's picture

Off with their heads! They're not using them, anyway.

Morbo's picture

Aren't you supposed to use a leaded shaft or wooden stake to the heart?

mule65's picture

I would like to see a 10% flash crash without recovery in the face of Benron Bermonkey and the F'n POMO coattail pseudo bulls.  Wishful thinking, I know.

troublesum's picture

sorry to take the first spot for someting unrelated but does anyone have any answer to why Mish's Blog site is removed?

CheapKUNGFU's picture

ok, quick sideline to Mish...

Investor for 17 years, runs his on fund for 12 years, blogs for 3 years, disappears without warning... my suspicion... HACKED

All your bloggers are belong to us, make your time...


sbenard's picture

That seems to be the most likely explanation! Amazing!

But do you think they hacked him, then deleted his blog? Is that what you think is likely to have occurred? If so, then he will probably be back within a few days?

He must be pissed as hell!

...or is all this even more sinister? I don't know!

Raging Debate's picture

Hackers would have had to hack Google itself. Good luck with that theory. His site is back up in any event.

azengrcat's picture

He had some harsh words for Google and their double dutch irish tax evasion sandwiches.  Not a good idea when you are using the Google Blogger platform for your blog.

Raging Debate's picture

I was thinking the same things when I saw his site down.

tonyw's picture

my guess is he's a bit busy and forgotten to pay for something:-)


OpenEyes's picture

his blog just came back online about 5 minutes ago

Waubay's picture

I'm sure that if his site comes back up Mish will find a way to blame it on the public unions.

NOTW777's picture

AAPL flash crash

did you get some at 212

HarryWanger's picture

Was there really an AAPL flash crash?? I just brought up the tick chart and don't see it.

espirit's picture

Bought all I could at 215. Am now retiring to Tahiti. lol

Dr. No's picture

stockcharts show it.  My broker showed it to $212.52.  But in thlae st 5 minutes, it looks like it was edited and the quote no longer shows it.  COVER UP!!!

cougar_w's picture

Goog Finance is showing 212 in the range. Heh. Someone's got some 'splain'n to do.

At times like this I like to post a link to my "flash crash" story. It's fictional but I want you to think about Fortran (the one with boobs) swinging the market 20% on either side of the average to make a buck, nuking the HFT algos, branching and then setting fire to the GS co-lo, and the Exchange keeping the whole thing under their hat. No flash crash here folks. Oh hum just another day.

Fun times. Fun times.

Sokhmate's picture

Fortran is quite the babe, even with the blue skin.

NOTW777's picture

paging Mr. Sack

Spalding_Smailes's picture

Harry whats up with SSO ?

HarryWanger's picture

I'm long at 43.62. It'll be fine. If not, I'll take a my loss. I trade with very tight stops on these leveraged ETFs. Should turn this afternoon.

Spalding_Smailes's picture

Just bust'n, thanks for heads up though a good etf for pomo days ....

Pladizow's picture

Obviously brilliant but needs a speech coach!

citationneeded's picture

I am thrilled you changed your avatar.

BrosMacManus's picture

The one with Bawney Fwank weirds me out. Sharp fellow, that poster, but his/her avatar is creepy....

Virginian's picture

Would you mind if I "borrowed" your old avatar for a bit?

I Am The Unknown Comic's picture

Tell your tits to stop staring at me.

truont's picture

Just like a ketchup bottle that you pour and nothing comes out. And then you make a statement like Bernanke saying you have evidence that this is working, that there is no risks, and then suddenly, just like an out of money option, the whole ketchup coats your French fries, everything, the whole table, your face, everything.”

I like this guy!  Way to go, fat tails!

Spalding_Smailes's picture

Please some  flair nature boy.........Wooooooooooooooooooooooooo

espirit's picture


Please provide advance notice of such graphic posts, I just lost my lunch.'s picture

s i m p l y  gross, william

get that ape a wax job.

LMAO's picture


Just a thought. Is Taleb by any chance Bernanke's Evil twin brother, parted at birth. I mean, the resemblance is striking.


williambanzai7's picture

I noticed that as well ;-)

LMAO's picture

There must be a story here!

Jewish mother - Arab father kinda Nemesis for life.

Look at their background, it's uncanny

The suspense is a killer, the plot ultimately leading to the conflict of all conflicts.




i-dog's picture

"Jewish mother - Arab father"

Source please?

From Wiki:


"His political Greek Orthodox Levantine family saw its prominence and wealth reduced by the Lebanese Civil War which began in 1975.


On his mother's side, his grandfather Fouad Nicolas Ghosn and his great-grandfather Nicolas Ghosn were both deputy prime ministers of Lebanon. His paternal grandfather was a supreme court judge;"

Doesn't sound too jewish or arab to me ... more like pure Lebanese Christian.

kaiserhoff's picture

Vaguely right, but I'm sure Taleb would prefer "phoenician".  His roots and understanding of the culture go back to the misty dawn of civilization.

Max Hunter's picture

I always thought that about Krugman and BB..