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Taleb Blasts Bernanke & Greenspan, Warns "Debt Raises The Risk Of Catastrophe"

Tyler Durden's picture




 

"Debt increases tail-risk," warns anti-fragility expert Nassim Taleb, "whether it's personal, corporate, or governmental." A rise in debt, he warns, implies nothing less than a rise in "the risk of catastrophe," and Taleb chides,  governments "should be focused in risk-management... instead of creating these risks." This brief Bloomberg TV clip cuts to the chase as the normally circumlocutory Taleb unloads on the perils of central banks, "Mr. Greenspan created tail risk by eliminating the business cycle," and since then tail-risks have accumulated with debt the "number one creator of these risks." In a fascinating phrase, Taleb notes, "corporate debt is benign," since in failure it turns into equity, "but government debt is another matter... for it turns into inflation or worse invasion..."

Reflecting on his "skin in the game" approach to risk management (forecast and over-confidence)...

"Mr. Greespan and Mr. Bernanke are unharmed by their mistakes... but who is harmed - you, me, all taxpayers."

On models ignorant of tail-risks

"borrowing money to 'create growth' is an incorrect thesis - take all the 'spurts' of growth from the Industrial Revolution onwards, debt has been used to finance wars - not a good thing...

On Keynes...

"Keynes understood uncertainty all too well and would have encouraged borrowing like this"

 

"Even Keynes would not have encouraged quantitative easing"

 

"There is no excuse to accumulate debt on the grounds of growth"

What are the elements that create the framework for the next crisis...

Simply put, Taleb says governments are "painting the tape" as headline numbers may look good but the middle class is being destroyed

 

It's Sunday afternoon, take 8 minutes and watch/listen to Taleb...

 

 

And the infamous Black Swan of Cairo article that repressing 'normal volatility' for long enough creates an ever-increasing likelihood of 'catastrophic volatility'...

ForeignAffairs

 

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Sun, 11/17/2013 - 20:30 | 4163677 Peter Pan
Peter Pan's picture

Borrowing money for productive purposes CAN produce growth and good growth for that matter. The problem over the last decade or so is that too much of the debt went into bigger houses, more war, more excess cpacity, more granite benches, more cars, and higher salaries for useless public servants and their pensions.

Sun, 11/17/2013 - 20:33 | 4163688 Colonel Klink
Colonel Klink's picture

Try like the last 3 or 4 decades.

Sun, 11/17/2013 - 20:36 | 4163698 mayhem_korner
mayhem_korner's picture

 

 

Try 10.  That's when the Federal reserve was born.

Sun, 11/17/2013 - 20:42 | 4163709 Colonel Klink
Colonel Klink's picture

Touche!

Sun, 11/17/2013 - 21:20 | 4163815 NoDebt
NoDebt's picture

"circumlocutory"

I'm using that one at the water cooler tomorrow.

Sun, 11/17/2013 - 20:53 | 4163747 ItsDanger
ItsDanger's picture

More like the last 40-50 yrs. 

Mon, 11/18/2013 - 08:05 | 4164503 markmotive
markmotive's picture

This is how the world works. 1) Borrow for positive NPV projects, 2) Then borrow to keep growth alive, 3) Then borrow to prevent collapse, 4) Then collapse.

And then it starts all over again.

http://www.planbeconomics.com/2013/10/a-crash-caused-by-excess-debt-wash...

Sun, 11/17/2013 - 20:36 | 4163694 mayhem_korner
mayhem_korner's picture

 

 

Borrowing money against excess production is even more sound.  Fiat currency blurs that relationship, however...

Mon, 11/18/2013 - 00:27 | 4164186 Big Brother
Big Brother's picture

That's what the industrialists did prior to the creation of the FED.  This "self-funding" was making bankers obsolete; and these bankers did not want to be obsolete.  We all know how the rest of the story goes...

Sun, 11/17/2013 - 20:50 | 4163736 bunzbunzbunz
bunzbunzbunz's picture

I would say that even the borrowing that is used for stupid purposes like oversized houses and other bullshit still can produce good. If the 'lower classes' can afford something, it makes the 'higher classes' feel the need to make more money to buy more things. This theoretically produces cycles of improvement for everyone (new products means more demand for those 'lower class' jobs). It just doesn't last forever. But just because something cannot last forever, it is not certainly a bad thing.

Borrowing(leverage) is just another gamble people can make. When you get in a car, you are leveraging your statistics for survival in the attempt to get to your job and make money. So it is hard to tell where the line between reasonable and unreasonable leveraging is drawn. 

Sun, 11/17/2013 - 21:51 | 4163872 Withdrawn Sanction
Withdrawn Sanction's picture

"So it is hard to tell where the line between reasonable and unreasonable leveraging is drawn."

It IS hard to tell in advance, given that no one has a crystal ball.  However, the general rule (and a point Taleb was making) remains true:  if the debt taken on does not produce enough income/product to repay the debt plus interest, then the debt was unproductive (or "unreasonable" to use your terminology).  Trouble is, we cant always know that ex ante; it is only revealed w/the passage of time.

Having said that, there are general classes of indebtedness that are, by their nature, unproductive.  Borrowing to facilitate consumption is one such class.  The reason is that repayment of principal and interest comes out of future income. Since the indebtedness was undertaken to accelerate consumption, it is not productive so future income is unchanged.  That means that the other things that the portion of one's future income could have bought will instead be diverted into debt service.  That's not to say such borrowing is bad in itself, merely that there is a cost to rearranging one's consumption patterns in time using debt.  If kept within manageable limits, it easy to see how consumption-based borrowing could be desirable by some.

But that's also the rub when it comes to government.  A large chunk of debt-financed government expenditures go toward facilitating consumption (i.e., are unproductive, such as income mntce and transfer programs to name just 2).  If the growth rate of the governemnt's ability to service such debt (often taken as the growth rate of real GDP) falls below the interest rate on the contracted debt, the instability of such spending policies becomes obvious.  IOW, in such a situation, debt growth becomes self-perpetuating and explosive.

Mon, 11/18/2013 - 02:45 | 4164342 Pareto
Pareto's picture

..........and punishing.

Mon, 11/18/2013 - 00:05 | 4164149 bh2
bh2's picture

There is an essential difference between taking risks for which you will pay and taking risks for which others will pay. It is also the essential difference between free enterprise and government.

Sun, 11/17/2013 - 21:48 | 4163867 Dick Buttkiss
Dick Buttkiss's picture

Peter Pan's got a down-voter?

NSA? CIA?

Hi, guys.

Mon, 11/18/2013 - 04:14 | 4164412 I Write Code
I Write Code's picture

Probably Captain Hook.

Everybody comes to ZH.

Sun, 11/17/2013 - 21:51 | 4163871 ebworthen
ebworthen's picture

"...and higher salaries for useless CEO's, CFO's, traders, bankers, insurance companies, corporate wonks and paper pushers, MBA harpies and warlocks, military/industrial complex goons, and crony capitalism mammon lusters."

Sun, 11/17/2013 - 23:04 | 4164037 pondview28
pondview28's picture

Only if borrowed from savers. Only if overall productivity is increased. Everything else is hand waving meant to distract by the political, academic, and financial classes.

Mon, 11/18/2013 - 02:03 | 4164310 BringOnTheAsteroid
BringOnTheAsteroid's picture

Why borrow, why not save for a period and put that saved money toward productive purposes. 

 

Why borrow, why, why, why, why, why. Are we are bunch of children who just can't wait. What if we eliminated the concept of borrowing, period. What would the world look like. Pretty much the same but without exhorbitantly rich individuals. Sure, the speed of development would probably be less, but after this crashes I suspect we're going back, way back before the state we would have achieved without the borrowing.

Sun, 11/17/2013 - 20:35 | 4163693 The Alarmist
The Alarmist's picture

Egyptian spouting anti-American-way commentary ... time to warm up a few drones in the bull-pen.

Sun, 11/17/2013 - 20:39 | 4163700 Colonel Klink
Colonel Klink's picture

Obomba call your office!

I don't think they (downvoters) caught the sarc.  +1 for the effort to convey US foreign policy.

Sun, 11/17/2013 - 20:54 | 4163753 Harbanger
Harbanger's picture

 Meanwhile, Egypt has filed criminal terrrist charges against Obama with the International Criminal Courts for crimes against humanity. He is acccused as an accessory of Muslim Brotherhood. 

Sun, 11/17/2013 - 21:21 | 4163820 NoDebt
NoDebt's picture

For real?

Sun, 11/17/2013 - 21:44 | 4163829 Harbanger
Harbanger's picture

Just one more thing the MSM is covering for Obama.  Here's where I read it, there are other articles.

Egypt charges Obama with "Crimes Against Humanity in International Criminal Court

http://www.dailypaul.com/305479/egypt-charges-obama-with-crimes-against-...

Edit; Here's a better link,

Criminal terror charges filed against Obama

http://www.wnd.com/2013/11/criminal-terror-charges-filed-against-obama/

Sun, 11/17/2013 - 20:55 | 4163758 The Alarmist
The Alarmist's picture

Thanks ... forgot the sarc-tag to help the sarcasmically-challenged ....

Sun, 11/17/2013 - 20:39 | 4163707 kaiserhoff
kaiserhoff's picture

Lebanese or as he prefers, Phoenician.  Taleb takes a long view of things.

 

Sun, 11/17/2013 - 20:55 | 4163755 machineh
machineh's picture

Obama: 'Hey, I'm a Phonycian too!'

Mon, 11/18/2013 - 00:34 | 4164196 Big Brother
Big Brother's picture

He discusses the stability of 4000 years of Levantine city-states in Anti-Fragile

http://en.wikipedia.org/wiki/Levant

In the same vein...

The Iroquois when making decisions affecting their tribe, "tried to think how their decisions would affect those seven generations into the future."-  I read that on a toilet paper roll at my girlfriend's house today.  I think the brand name was "Seventh Generation"

Sun, 11/17/2013 - 20:39 | 4163708 Salah
Salah's picture

Yeah, right....take your meds and go back to the shallow gene pool you crawled out of... in West Viginny, Idaho, wherever.  Taleb's a coptic Christian from Lebanon.

Sun, 11/17/2013 - 20:44 | 4163719 Colonel Klink
Colonel Klink's picture

Oh well then I guess his opinion now matters.  Can't trust THEM Mooslims. :)

/doIreallyneedit?

Sun, 11/17/2013 - 23:47 | 4164112 sgorem
sgorem's picture

fuck you, from the shallow gene pools of West Virginny and Idaho, and wherever.

Sun, 11/17/2013 - 20:36 | 4163695 kaiserhoff
kaiserhoff's picture

Great insights and summary of first principles from Taleb as usual.  Thanks Tylers.

I would only add that not only Fed Chairmen and bankers have been protected from risk and the consequences of their mistakes and abuse.  Government at all levels has had a free ride at the expense of the productive sector.   This too shall pass.

Sun, 11/17/2013 - 20:36 | 4163697 I Write Code
I Write Code's picture

Hey, good stuff!

I've been luke-warm on Taleb's black swans and anti-fragility stuff, I find these economic comments much sharper.

Sun, 11/17/2013 - 20:39 | 4163703 ziggy59
ziggy59's picture

Not just taxpayers pay...any saver, or person that breathes, eats, and sleeps, globally...

Sun, 11/17/2013 - 20:39 | 4163706 lordbyroniv
lordbyroniv's picture

FOREIGN AFFAIRS is a CFR publication.

Sun, 11/17/2013 - 20:43 | 4163715 Occident Mortal
Occident Mortal's picture

The only thing that has allowed the Fed to get away with $4 trillion of QE is decelerating monetary velocity.

Sun, 11/17/2013 - 20:45 | 4163723 Colonel Klink
Colonel Klink's picture

The trend is your friend but the switch is a bitch!

BITCHEZ

Sun, 11/17/2013 - 20:49 | 4163732 kaiserhoff
kaiserhoff's picture

There's always the dead cat bounce;)

Sun, 11/17/2013 - 20:53 | 4163749 Colonel Klink
Colonel Klink's picture

I was referring to an increase of monetary velocity being just a little problem.

Cats don't bounce much after you hit them with a financial shotgun.

Sun, 11/17/2013 - 20:45 | 4163724 kaiserhoff
kaiserhoff's picture

Not the only thing.  Weak and stupid trading partners have been a factor.

Ye olde, best looking horse in the glue factory is still holding up the dollar..., for now.

Sun, 11/17/2013 - 20:49 | 4163735 Cycle
Cycle's picture

A good bit of that QE ends up going into the bankster's margin bets vortex, from which it never emerges.

Sun, 11/17/2013 - 20:50 | 4163738 Tasty Sandwich
Tasty Sandwich's picture

If they truly believed that stimulating demand would magically solve everything, they would load actual helicopters with $100 bills and drop them over the crowds at baseball and football games.

Sun, 11/17/2013 - 20:59 | 4163760 RiverRoad
RiverRoad's picture

Re "decelerating monetary velocity":  Better known as "no jobs out there".  And TPTB will make sure that there aren't any either.  The present scenario sure is working well for them.

Sun, 11/17/2013 - 20:47 | 4163728 Aquarius
Aquarius's picture

Life IS Risk, albeit in diversity.

Life, is/means/must be/has to be encapsulated with full Risk, Humanity is a full heuristic Universal Force; our to be-being to be-coming, is entirely in our hands. We are not monkeys nor animal: we are of the Kingdom of Man the Accomplished, (obviously in evolution).

Risk is defined (in the financial circles) as computable (and acceptable) uncertainty. But, what the phuck would they know as they spend all their time gaming the system in their favour. We have no idea what will happen tomorrow (figuratively speaking) - this is uncertainty - due to this being a non-linear dynamic. This is a Primary Principle of Universal Life; emphasis, "life". Society driven by cowardice and apathy, demands no Risk and hence, pays the price of undeserved comfort. Politicians peddle Risk-free as snake-oil salesmen. Why? To get to the money (your money) to get to the Power and to grab more "money".. Here is the root of "terrorism". which is a priori, a political tool. Bankers demand Risk-free by Law, Legislation and Enforcement through coercion and bribery, albeit at our cost. The absence of Risk - produces "denial" and contorts and distorts Society. This is a scientifically  well founded fact. Humanity needs a teacher and suffering is the enemy that teaches. Does Bernanke et al teach or steal? Yes, we the West, live in "denial". Simple really. One of the best source of unfettered news in the World is http://www.informationclearinghouse.info/ Please support this independant and non MSM (yuk) one-man show if you appreciate the Free and Honest Service of dedication and have the means. I do not have the resources to contribute so I post this message in lieu thereof. Thank you.
Sun, 11/17/2013 - 20:54 | 4163751 The Alarmist
The Alarmist's picture

I prefer the Dead Milkmen's version: 

 

Life is shit, life is shit,

The world is shit, the world is shit, and

This is life as we know it

This is life as we know it ....

 

And so on ...

Sun, 11/17/2013 - 21:01 | 4163772 ParkAveFlasher
ParkAveFlasher's picture

Try to run, try to hide, break on through to the other side.  -Jim Morrison

Sun, 11/17/2013 - 20:58 | 4163765 Seasmoke
Seasmoke's picture

Madoff.....HA !! I still dont understand why that motherfuck pulled the plug on himself , he would have made it thru the scare ....guess he is a perfect example of why The Fed will never Taper

Sun, 11/17/2013 - 21:03 | 4163767 noob
Sun, 11/17/2013 - 21:04 | 4163781 youngman
youngman's picture

Just how did it get started in Germany during the Weinmar republic....it had to start somewhere and with something..that is called faith I think...they lost the faith of the Mark..so they tried to spend it as fast as they could...

Sun, 11/17/2013 - 22:56 | 4164017 delacroix
delacroix's picture

youngman, I believe the central bank, was turned over to private bankers, as a reperations condition, from the west. that's when the money printing and theft really got into high gear. the prior head of the central bank died of a heart attack shortly after the transition.

Mon, 11/18/2013 - 05:54 | 4164441 geewhiz
geewhiz's picture

Crackup boom phase

Sun, 11/17/2013 - 21:13 | 4163791 NIHILIST CIPHER
NIHILIST CIPHER's picture

interesting tidbit-      A large number of the auto loans made to move vehicles off car lots here in the USSAare made to folks who have extremely low credit scores and are in arrears on their mortgage payments. The dealership is required to catch up the buyers mortgage payments which is then built into the auto loan.    FORWARD !!!

Sun, 11/17/2013 - 21:23 | 4163823 NoDebt
NoDebt's picture

Student loans and car loans are the ONLY areas of consumer credit/debt growth.  There was an article about it just a couple days ago.

Sun, 11/17/2013 - 21:25 | 4163825 TheRideNeverEnds
TheRideNeverEnds's picture

Blasphemy!!

 

Krugman has proven, with science mind you, that debt doesn't matter as we can just keep printing money to pay our debts with no negative consiquences. 

 

http://youtu.be/4SvegL-hpaM

Mon, 11/18/2013 - 02:09 | 4164317 BringOnTheAsteroid
BringOnTheAsteroid's picture

On second thoughts, the picture of Janet Yellen with a beard maybe wasn't so bad after all. 

Sun, 11/17/2013 - 21:30 | 4163836 noob
Sun, 11/17/2013 - 21:32 | 4163841 Cloud9.5
Cloud9.5's picture

  

The central planners will not release their death grip on communities until after the collapse.  Impotence is the only thing that will cause them to finally allow communities to improvise and self-organize.

 

There was a time when businesses enjoyed a normal life cycle.  Like bubbles in the surf, they were born, grew up, grew old and died.  The central planners in an effort to end the highs and lows have harmonized all of those tiny bubbles into one gigantic bubble.  Now when it pops, it will take the nation state and the society with it.

  

Sun, 11/17/2013 - 22:53 | 4164008 ebworthen
ebworthen's picture

Love how he brings in ancient history; Babylonian's, Ecclesiastes, timeless principles.

Fuck you FED and U.S.S.A. and .gov N.S.A. assholes.

Crash and kill the fucking beast!!!

DIE M'Fucker's!!!

Sun, 11/17/2013 - 23:10 | 4164061 reader2010
reader2010's picture

"Happiness is obsolete: uneconomic.”

- Theodor Adorno

Mon, 11/18/2013 - 00:49 | 4164236 ajax
ajax's picture

 

 

I adore Adorno.

 

Sun, 11/17/2013 - 23:20 | 4164075 Running On Bing...
Running On Bingo Fuel's picture

You had your 15 minutes, douche.

Go!

Over.

Sun, 11/17/2013 - 23:22 | 4164078 Son of Loki
Son of Loki's picture

Don't pay for anything up front. Put it on credit--cars, houses, everything!

Then simply walk away...it's all the rage!

Sun, 11/17/2013 - 23:56 | 4164128 janus
janus's picture

nice crevat...it's tough to pull-off a crevat (janus cannot; though he'd like to), and taleb does it splendidly.

oh, and evah-so incidentially, that FA piece was...awww, hell, i was gonna try and pull-off some sorta coy understatement (like taleb kept doing in the interview (and, btw, i'm sure the interviewer is a good guy and all, but he's so far outta his depth with taleb that it makes for awkwardness...head's up, bloomberg producers))...that piece ought'a be mandatory reading for all first-year university students.

taleb is more a philosopher than economist; and inasmuch as the former is far superior the rascally intractable latter, i'll further say that most-all economists are out of their depth when they even attempt a rebuttal at talebian torpedoes.  the man's a world treasure; and proof positive of lots of good stuff i haven't the time to ennumerate.

and did you hosers notice the art in his lanugage?  elegant AND eloquent (not one at the expense of the other).

major Kudos, mr. Taleb (you get a capped sir-name, Good sir knight!).

what's that?  yeah, me too; i could do with a suitable tribute...i think a perfect song will make for the perfect due.

here's to you:

http://www.youtube.com/watch?v=cu7gafphe9M

(of all available muses, profundity is my most favoritist among the nine...)

shine its evah-lovin Light on me,

janus

Mon, 11/18/2013 - 02:36 | 4164335 suz
suz's picture

Notice at 5:21 he starts to stutter, when talking about how the banks in '08 lost 5 Trillion. What's the real story that no one is telling about the market, that is not accessible to mainstream. We see the occasional (1) rat that jumps ship, where we will then see 100. We haven't been told the true scope of the extent to which the monetary system has had a coup d'etat--where derivatives have been the underlying golden cow that the fed's will go to any length to protect, that has been running the show. Why are not any journalists exposing this story? Where are the researchers to put these facts together? I want to hear more than the milktoast theorys these people retort, interview after interview. The derivatives, that underlie the entire pensions of the world, and the game changers, with gold. No one will have a handle on any one level. But, that's not all, what's really doing?

Mon, 11/18/2013 - 02:54 | 4164352 QQQBall
QQQBall's picture

work hard, save and invest while living well below your means. Borrow when rates are high, not low. Being debt free is alot of freedom.

Mon, 11/18/2013 - 03:02 | 4164359 Clowns on Acid
Clowns on Acid's picture

Ok Taleb - we all know its bad, immoral, and that they are criminals ..... how are they stopped ? 

Mon, 11/18/2013 - 06:55 | 4164462 Peterus
Peterus's picture

I don't think there is any way to stop them right now. In elections you can choose between allowing and disallowing gay marriage, but certainly not QE, foreign policy or economics. People in general have gone through public schools and took a large dose of MSM. They might get angry, but they will always revert to the sacred democracy and rally by the leaders in time of crisis.

The only way is to let them fail and make as much awarness as possible. When it goes crumbling down, old assumptions will go down with it. If a significant minority "knows what happened" than maybe system will be rebuilt in much better way. So i guess... close down your business and go on welfare? Earn little, spend little, do other interesting things in life aside from economic activity?

Mon, 11/18/2013 - 05:33 | 4164436 Dr. Bonzo
Dr. Bonzo's picture

Nassim doean't do much press because--like most of us--he holds modern journalists in extreme contempt and considers playing the media game a complete waste of time.

Mon, 11/18/2013 - 08:59 | 4164571 tradewithdave
tradewithdave's picture

The reason Taleb stutters when he talks about the "two fragilities" (benefit and anti-benefit) in his value assignment model is because there are three fragilities and it's the third one that counts... literally... it counts... everything.  In a Ricardian model there is no value, only a number that's means tested from the top down in an Oliver Twist "Moooorrre.  You want More! world". 

http://tradewithdave.com/?p=13906

Do NOT follow this link or you will be banned from the site!