Taleb On "Skin In The Game" And His Disdain For Public Intellectuals

Tyler Durden's picture

Nassim Taleb sits down for a quite extensive interview based around his new book Anti-Fragile. Whether the Black Swan best-seller is philosopher or trader is up to you but the discussion is worth the time as Taleb wonders rigorously from the basic tenets of capitalism - "being more about disincentives that incentives" as failure (he believes) is critical to its success (and is clearly not allowed in our current environment) - to his intellectual influences (and total disdain for the likes of Krugman, Stiglitz, and Friedman - who all espouse grandiose and verbose work with no accountability whatsoever). His fears of large centralized states (such as the US is becoming and Europe is become) being prone to fail along with his libertarianism make for good viewing. However, his fundamental premise that TBTF banks should be nationalized and the critical importance of 'skin in the game' for a functioning financial system are all so crucial for the current 'do no harm' regime in which we live. Grab a beer (or glass of wine, it is Taleb) and watch...

 

Via Redmond Weissenberger of the Ludwig von Mises Institute Of Canada,

A must see interview with Nassim Taleb


Nassim Nicholas Taleb is a former trader and hedge fund manager, a best-selling author, and a ground-breaking theorist on risk and resilience.

Taleb drew wide attention after the 2007 publication of The Black Swan: The Impact of the Highly Improbable, which warned that our institutions and risk models aren’t designed to account for rare and catastrophic events. Among other things, the book cautioned that oversized and unaccountable banks using flawed investment models could bring on a financial crisis. He also warned that the government-sanctioned housing finance agencies, Fannie Mae and Freddie Mac, were sitting on a “barrel of dynamite.”

One year after The Black Swan was published, a global banking crisis was brought on by the very factors he identified.

Taleb doesn’t identify as a libertarian, but he often sounds like one. He has argued that we need to build a society where major actors have “skin in the game” and our public intellectuals can bloviate without subjecting the rest of us to the consequences of their bad ideas. He supported Ron Paul in the 2012 presidential election and has cited the libertarian economist Friedrich Hayek as an influence.

Taleb has called New York Times columnist Thomas Friedman “vile and harmful” and coined the phrase the “Stiglitz Syndrome” after Nobel-prize winning economist Joseph Stiglitz, which refers to the phenomenon of public intellectuals being held utterly unaccountable for their bad predictions. Paul Krugman and Paul Samuelson are among Taleb’s other Nobel laureate bête noires.

Taleb's new book - Antifragile: Things That Gain from Disorder Taleb’s new book is Antifragile: Things that Gain with Disorder, which argues that in order to create robust institutions we must allow them to build resilience through adversity. The essence of capitalism, he argues, is encouraging failure, not rewarding success.

Reason’s Nick Gillespie sat down with Taleb for a wide-ranging discussion about:

  • why debt leads to fragility (5:16);
  • the importance of “skin in the game” to a properly functioning financial system (10:45);
  • why large banks should be nationalized (21:47);
  • why technology won’t rule the future (24:20);
  • the value of studying the classics (26:09);
  • his intellectual adversaries (33:30);
  • why removing things is often the best way to solve problems (36:50);
  • his intellectual influences (39:10);
  • why capitalism is more about disincentives than incentives (43:10);
  • why large, centralized states are prone to fail (44:50);
  • his libertarianism (47:30);
  • and why he’ll never take writing advice from “some academic at Cambridge who sold 2,200 copies” (51:49).

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Itch's picture

 

That’s the thing though, when you say things are accelerating towards a climactic event, you are stating the obvious. Things are always accelerating towards a climax, that’s life, and that’s the times we live in. "Things have never been so bad" "politics have never been more divided" "foreign policy has never been so brutal" "politicians have never been more dishonourable"...but that’s the way its always been. Politics were always "never more divided", there was never a time when politics weren’t "more divided" in every decade, that’s the nature of politics, that’s the nature of democracy; the middle ground carved out after the battles. Don’t fret, stick the course and she’ll get to civilisation one day at a time.

On your points about the economy, I’m not going to comment on them, I already know the generic mooncat response, i.e. “absolutely everything is a lie, we are all debt slaves devoid of choice, controlled by hidden tyrants, and if you want evidence well fuck you sheep, you’re in denial because MSM have brainwashed you with Dancing on ice”. I know the drill, I know how good sense has let you down, and that’s why you have taken on some reductionist fantasy of goodies and baddies as your go to model of the world. Then mix in a bit of politics that you obviously cant handle and its all so inviting and romantic…. “breathing free air”, and “living free on the backs of better men”; you must be some kind of a fucking imbecile talking that crap to me. Snap out of it man, what is that shit, 1950’s propaganda or something? It’s got you by the throat, and its going to eat you. You are being bought and sold...careful now.

 

tango's picture

New JR

Calliing market signs encouraging?  I got a better one.  The WSJ reported on Spain's unemployment rate passing 26% (official figures) and said, "Things are looking up".  I kid you not.  Bonds are "only" at 5% - no word on how these "cheap" bonds are repaid.  You see, Spain's immigrant rate is in the 30's and they are leaving (as is any young person with an atom of sense) and in the end this will help the economy.   I guess Italy's drastic population decline is "good" because it won't be so crowded or Portugal's poverty is beneficial because there's no way to go but up.  

koaj's picture

black swan was a must read. sounds like this one is as well

kaiserhoff's picture

Taleb is quite solid on libertarian/free market values. 

His investment philosophy - the bar bell, is a fool's errand.

Taleb believes you should, (and his fund, Empirica, did) -

   Put 90% of your assets in T - bills, 10% in options, both puts and calls.

   Don't do it.  You will lose 10% consistently while others are making 10%.  In his own words, "we can't blow up, but we can bleed to death."  Like conversions, this is basicly a bet that the market always underestimates volatility.  Sometimes in does, mostly in doesn't.

espirit's picture

More like death from a thousand cuts.

machineh's picture

In his first book The Black Swan, Taleb said that's what he's doing (looking for long-shot option payoffs).

Strange that dealers sell options, while the public buys them.

Taleb is on the same side of the trade as the public odd-lotters? 

I'll pass, thanks. Taleb may be highly articulate, but he's never explained how his option math can work. 

Beware ...

tango's picture

Dealers sale options, true, but they also get stuck with them.  It's always a two-edged sword.   In my 20's I ibought some calls on the last day at 1/16.   The stock went up 10% and I made a small fortune but that was as much a Black Swan event as anything. The Black Swan event is really a non-starter since ANY system is designed to work within normal, operational parameters and not with improbabilites.  We don't design our defense based on a possible alien invasion, cars are not built for a bridge collapsed, football games are not played with the idea that an earthquake could occur.   

reader2010's picture

 "Four legs good, two legs bad!!!"

GetZeeGold's picture

 

 

Haven't seen it proved wrong once.

Banksters's picture

My favorite quote by Seneca:

 

“Religion is regarded by the common people as true, by the wise as false, and by the rulers as useful.”  

 

earleflorida's picture

'mankind religiously pursues truth... whether it be his or his fellow man, one and all`s, innate soul-mate... his conscience-- 

,... as the wise man treads naught on misdemeanors, but rather upon inequities garnered by ones heuristic apriori intuition, which in, and of itself, is weighted upon a vaulted vanity of ones own, self-hubris insolence--

,... as the masters find both wise and common men a conterminous denominator, imbibing the perfect proselyte`candidates, forever woven in a grand matrix of surreal ethereal folly--

,... where the common-man... the wise-man, and the master-man, are all but the same in a timeless universe'

welcome to planet earth?!   ;-)    just musing with 'seneca' 

CheapBastard's picture

“All religions are equally sublime to the ignorant, useful to the politician, and ridiculous to the philosopher.”

 

? Titus Lucretius Carus, On the Nature of Things: de Rerum Natura

John_Coltrane's picture

Nice. My favorite Lenin quote: 

"Religion is the opiate of the masses"

Favoritte Mao Quote:

"Power grows out of the barrell  of a gun"  (The result was:  Confiscate all the guns)

Even statists tyrants have some sound ideas.

malek's picture

You should reflect a bit longer on the Lenin quote before declaring it a favorite.

I am not a religious person, but religion (at least the one Lenin was referring to, Christianity) does give a moral framework to the masses of the people, who cannot construct a valid one themselves.
Even more you should wonder with what intention Lenin quipped that. Wasn't that mainly to have the people fall for his framework instead, a framework built on lies and a few half-truths?

In my conclusion the Lenin quote shows the traits of a sociopath, or worse. But I concede I also didn't see it that clearly when I was younger.

beentheredonethat's picture

"That which kills you makes me stronger"

TNTARG's picture

A glass of good, red wine. Always.

Cabreado's picture

It's actually quite a shame that it takes such gifted eloquence to market simple Truth.

disabledvet's picture

"skin in the game" for a financial system? hahahahahaha. what a pathetic conceit. the LAST thing Wall Street...let alone you and me...wants is "skin in the game" when it comes to Governments repaying their bills. And yet...Governments (some) do exactly that...go figure. that's the lesson of this Government during this failure...indeed interestingly they've been the one's bailing out Wall Street...the place where "that guy has skin in the game"...which only goes to show how stupid "that guy" is (as reported here so well as it relates to Apple of course.) Listen...sure, you want money invested when it comes to recommending equities to people...especially on the long side. There is no better sales pitch than "we eat our own cooking" PERIOD. But when talking about financing say...NASA...i mean, c'mon. "no one has skin in that game." hence..."the need for the best economists there are." are they just pschyo-therapists telling us everything will be fine when in fact that is completely untrue? probably. it is called "the dismal science" for a reason however. i do not envy our Government that having bailed out the same people who gave We the People trillion dollar deficits forever their task. How do i "return the nation to budget surpluses" given such a reality? and the answer is of course "far easier to promise more than can even be believed" than actually put forth the effort of collecting the taxes and cutting the check. As Hitler...and many others...have observed "the bigger the lie the more they believe you." Can the USA really get that deficit to become a surplus? Not without a lot of help from economists...and obviously "that's mark to model" no matter how you slice it. Not to sound too...dismal...but "the bad guy's won" folks. Those banks are still there...and so is the Government that wants to make sure they are always there "doing what they do best"...so defined. that would be taking from you and giving to themselves...yes yes? Certainly doesn't sound in the Government's interest...

Hohum's picture

Neither the "statists" nor Mr. Taleb are willing to deal with the decrease in net energy that does the work that leads to the growth.  So it's all gibberish to me.  Or did Mr. Taleb surprise me in this interview?

Atomizer's picture

I will post scenarios. You can sniff thru the details of WEF IMF 'restoring confidence Bullshit'.

Global Financial Stability Report: Restoring Confidence and Progressing on Reforms, October 2012 

SDRs per Currency unit and Currency units per SDR

http://www.imf.org/external/np/fin/data/rms_five.aspx

 

Collectively, when a phony monetary system is exposed, good luck!

Atomizer's picture

Would like to help you protect your assets. Dow Jones will indeed break a new historical high. Smart money will take profits off the table. Be prepared.

http://www.generationaldynamics.com/cgi-bin/D.PL?d=ww2010.i.djia

 

Just like a broken record speaking, geopolitical polices/new central planning laws determine Wall Street financial outcome.

 

(1 + X) ^ 90 = (3834.44/69.61)

1 + X = (3834.44/69.61)^(1/90)

X = (3834.44/69.61)^(1/90) - 1

= 4.5%

 

I think CNBS was running a lower corner of +289% today.

http://www.generationaldynamics.com/cgi-bin/D.PL?d=ww2010.i.djia 

Home Page info

Dineroguru's picture

The problem is that government has figured out a way to perpetuate themselves no matter what happens!  The pass the hat for political donations no matter what happens, selling themselves to the highest bidder, thriving on crisis

flapdoodle's picture

Unfortunately, it would appear the most glaring example of an anti-fragile system is the upper tiers of TPTB - they exploit every adversity to forever tighten the reins of their power and stranglehold on the economy.

flapdoodle's picture

Unfortunately, it would appear the most glaring example of an anti-fragile system is the upper tiers of TPTB - they exploit every adversity to forever tighten the reins of their power and stranglehold on the economy.

There, I said it again!

Atomizer's picture

Lastly,

 

 

The Secretary-General announced that Prof. Jeffrey Sachs, his Special Adviser on the MDGs, will lead the Sustainable Development Solutions Network

http://www.un.org/millenniumgoals/beyond2015.shtml

 

Yet, that pesky sun is not helping new taxation programs.

UN 2015 PDF files

GetZeeGold's picture

 

 

Sustainable Development Solutions Network

 

Hell of a fancy name for we're going to rape you and steal all your money.

silverdragon's picture

Canada, Australia and New Zealand have a decent form of social capitalism that works for the people. Maybe its partly due to the multiparty system.

The US form of capitalism doesn't work.

Cabreado's picture

-10 for anyone playing games against "capitalism" with nary a hint of disdain for "corruption."

 

Atomizer's picture

Silverdragon

 

There is no hybrid system called social capitalism. You are a inbreed fuck head who was brainwashed through social indoctrination.

For shits & giggles, show ZH members what the derivative amount for Canada, Australia and New Zealand is. Never mind Fuck stick, I’ll do it for you.

http://www.bis.org/statistics/derstats.htm

Now that you know the truth, please tell us more about your new founded social capitalism system. Enjoy.

Them & US (Ft Naked on Grass Anim)

ItsEvolutionBaby's picture

I'm an Australian and i resent that.

The socialism in Australia works for the takers not the makers. Just like everywhere else. 

ItsEvolutionBaby's picture

And the 'multiparty system' is one party from a dictatorship. Bipartisanship is a nice little game the two main Australian parties play on a lot of issues.

When was the last time foreign policy was even an election issue? 

machineh's picture

Now that you mention it, when was the last time Australia ever stayed out of a bloody war?

Meanwhile ex-PM Howard crowed in the New York Times about how 'successful' his gun grab was ... and how the U.S. should follow his lead.

Howard and Murdoch are enemy aliens ... please take these ghastly cunts back!

GetZeeGold's picture

 

 

Australia.....what the hell happened to you guys?

kaiserhoff's picture

Don't know about the guys, but the Sheilas are vonderbar;)

linrom's picture

Idiot...the makers are the takers from time immortal.

John_Coltrane's picture

It would work a lot better if we had your low population density and relative cultural homogeneity (lots of caucasians with Asians sprinkled in).  That's the controlling variable in all three cases.  (It was also the source of the former prospersity of South Africa and Rhodesia)

Floodmaster's picture

Canada and Australia (Tar sands /Coal) are two Bernanke powered countries, Coal is at $168 a ton !!!

linrom's picture

Excellent point. It's a form of social jihad, an offshoot of capitalism that has chance to survive.

CheapBastard's picture
On Thursday, United Airlines announced it would cut 600 jobs after losing $723 million last year.

 

 

 

http://www.breitbart.com/Big-Government/2013/01/25/United-Airlines-to-Cu...

GetZeeGold's picture

 

 

United Airlines....moving forward.

QQQBall's picture

The election is over. You're fired!

hamstercheese's picture

..he walks 25 to 30 hours a week?? Recreationally??

sansnobel's picture

What Fucking planet did Gillespie come from??????  The fucking banks have been feasting off of the State for a long fucking time.  Does this dipshit not realize that this is how "money" is created?  Then when their bets go bad (with other peoples money mind you),they pay some more of your stooges in government to borrow more to "create" more money they can steal and buy property ,yachts, houses in the Hamptons etc. with.......fuck we really do have the blind leading the blind in this godforsaken country.  Every Fucking Banker of the last 100 years should have his net worth confiscated and used to service the families of the people who lost loved ones in the fucking wars these bastards started.  Fuck this country.  Fucking country of morons and deadbeats. 

billsykes's picture

What skin?

That is the biggest bullshit saying- buffet put 100 bucks in his first fund out of 100k as his "skin".  Woopty fucking do! 

If skin was so fucking important and these investors so fucking smart then we would make every single employee put in 2x plus their yearly salary as a fucking commitment to the company, guess what?

Doesn't happen, you couldn't recruit a single non CXO employee. Even CXO's have a hard time with skin- ask any replacement ceo. 

Skin my fucking ass. Brokers have no skin, banks have no skin, and most RE, PE, VC, Hedge, and every other financial service company or governent worker/official that relies on fake fiat currency. We are 100% + leveraged, the stong make the justice and say what is wrong and what is right.  Do as I say, not as I do. 

 

 

 

 

 

sansnobel's picture

I don't think leverage makes people strong. It overextends them and they end up with negative equity really quick when the game plays out like it normally does.  Leverage is what causes financial catastrophes.  And every motherfucker that decides to use it whether it be Joe home owner or Mr. Hedgefund manager should have his ass turned into a fucking rug when they use it and it back fires on their stupid ass. 

sansnobel's picture

Every body has known the mechanical advantage that leverage offers in an up market.  It's the morons that think that they should never have to pay for the down side when it happens that fuck the entire system.  There is a reason they use to require 30-40% down if you as a wage slave wanted a mortgage/leverage......think about it.  Limiting leverage limits profits and risk.  Oh but thou shalt not deny the bankers thier fucking bonuses.

Blankenstein's picture

+ 1000

"There is a reason they use to require 30-40% down if you as a wage slave wanted a mortgage/leverage......think about it.  Limiting leverage limits profits and risk."

The housing ponzi would never have materialized without the "easing" of the loan requirements.  Zero down, no-doc, subprime, etc. created a vast amount of mortgages that the bankers used to reap enormous profits through orignation fees, packaging and selling securites to the muppets, etc.  Then to be made whole with taxpayer money when the scheme fell apart.  Only upside rewards and no downside consequences, it is so laughable when uninformed sheep refer to this as capitalism.