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Guest Post: Black Swans And Complexity

Tyler Durden's picture




 

Black Swans And Complexity

Submitted by Jim Lewis

Nassim Taleb is wrong about the financial crisis and black swans.

The ongoing financial crisis is not the result of a perplexing phenomenon of complexity. It is the beginning of a train wreck we have seen for decades. We are not wandering into a surprise or horrified by the dark specter of a Black Swan rearing its long tailed head; this macro crisis appeared on the horizon long ago, easily calculated by any actuary armed with the knowledge that governments were not investing tax streams, but stealing them for current consumption.

Our monetary policies do not defend inflation; they fund deficit spending and protect banking institutions. That is their empirical purpose, and that is what technocrats are now struggling to accomplish in the EU. Further, the monetary system as constructed is not modeled after complexity; it is an artificial hierarchical oligopoly with all the single process failure points that entails, pasted on top of complex economies and kept alive by increasing leverage and bailed out by equally non-robust, frail self-serving governments without the will or common sense to reform. We are not watching complexity at work; we are watching unsustainable bureaucracies self-destruct while they force complex economies to foot the bill.

There is no Superman of bureaucracy. There are no rules or regulations that will prevent failure or negate investment on our road to prosperity that we do not already know. Our institutions have just consistently rejected them. After all, leverage and redistribution is much easier than successful investment. In a complex system, these bureaus would have died and been replaced by their betters long ago.

Full report (pdf)

 

 

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Wed, 12/07/2011 - 21:54 | 1956981 Coke and Hookers
Coke and Hookers's picture

Most Zerohedge posters know what happened. The only question is if it was by design or stupidity.

Wed, 12/07/2011 - 21:59 | 1956989 plantigrade
plantigrade's picture

Is there really a difference ?

Wed, 12/07/2011 - 23:03 | 1957074 hedgeless_horseman
hedgeless_horseman's picture

 

 

...if it was by design or stupidity...

I have found the best response to this question, for me, arrives on page 64 of the paperback version of Confessions of an Economic Hitman.  The paragraph starts:

"I vacillitated between viewing such people as an actual conspiracy and simply seeing them as a tight-knit fraternity bent on dominating the world."

Wed, 12/07/2011 - 23:06 | 1957114 RichardP
RichardP's picture

Why did you do that? they were asked.

Because we could they replied.  That is what differentiates us from you.

Wed, 12/07/2011 - 23:25 | 1957141 spiral_eyes
spiral_eyes's picture

"Nassim Taleb is wrong about the financial crisis and black swans.

The ongoing financial crisis is not the result of a perplexing phenomenon of complexity. It is the beginning of a train wreck we have seen for decades. We are not wandering into a surprise or horrified by the dark specter of a Black Swan rearing its long tailed head; this macro crisis appeared on the horizon long ago, easily calculated by any actuary armed with the knowledge that governments were not investing tax streams, but stealing them for current consumption."

— This guy obviously has not read much Nassim Taleb.

Wed, 12/07/2011 - 23:48 | 1957184 Oh regional Indian
Oh regional Indian's picture

But he is right. Taleb's black swan is a 6-9 sigma event, un-knowable, but always there.

In today's curcumstances, the sword of democles is right there for us to see. With all 6 blades of social instability, financial instability, government corruption, planetary upset...etc...

It's not where from but which one. I think one of the key aspects that many do not realize is that the center of the bell-curve has shifted. Permanently. It's been moving rapidly since September 2001.

ORI

/the-plan/

Thu, 12/08/2011 - 00:01 | 1957204 spiral_eyes
spiral_eyes's picture

A whole load of people have mistakenly charged Taleb with saying that the last financial crisis was a "black swan" that arose from nowhere. Actually he never said any such thing — he was always talking about the fact that derivatives exposure, social instability (your six blades) etc, made society much more vulnerable to negative black swans.

Black swans will always happen. The real question is whether your society is vulnerable to them. What Nassim Taleb did was explain what black swans were, and why our society today is exceptionally vulnerable to them. 

A whole lot of idiotic news anchors and commentators have misquoted and taken Taleb out of context as basically saying that "the last financial crisis was a black swan" and that is the "Taleb" that this guy is talking about, not the real Taleb, who is much more nuanced.

Thu, 12/08/2011 - 05:16 | 1957662 BorisTheBlade
BorisTheBlade's picture

.

 made society much more vulnerable to negative black swans.

Yes, but it is self-evident. If tomorrow something happens that no one can predict on a scale never expected in the place no one can even think about (i.e. 100% black swan), then obviously society will have much less resources at its disposal or structural stability to deal with it than 20 years ago for example. The trouble is that society doesn't need a black swan event to start breaking down, it is already in the process of decomposition, caused by the events, which are neither random nor unexpected for those paying attention. That makes practical value of Taleb's observations 'somewhat' questionable. Black swan can only accelerate the process, but it will run its course even in absence of it. Taleb is not wrong per se, his observation of normalcy bias is correct, but what it adds to what was known before him?

Thu, 12/08/2011 - 06:10 | 1957696 spiral_eyes
spiral_eyes's picture

Yes — the fundamentals are very bad. Ironically (this is what you are missing) they are so bad that it would take a positive black swan to avoid decomposition.

And that's the point — the concept of black swans has nothing specifically to do with market crashes, or decompositions, or anything negative in general. This is what the dumbass journalists, academics and commentators grossly misunderstand about Taleb. Black swans are just unexpected, "improbable" and unimagined events that look obvious in hindsight, and have a massive effect.

Taleb's real insights are mainly about societal and systemic fragilities to various thing: arrogance, randomness, black swans, normalcy bias, etc. He has a new book coming out called Antifragility which will delve deeper into this. 

 

Thu, 12/08/2011 - 08:21 | 1957805 Bicycle Repairman
Bicycle Repairman's picture

My summary of the article.  The world's governance is too centralized and thus everything is correlated.  So any change is now very large.  The actual economy is too complex for any centralized governing structure and the structure is solely interested in self-preservation, so any change by the structure now makes things worse for the actual economy.  Thus we get large changes that are bad for the actual economy.  As the actual economy worsens, the structure also comes under great stress.

The centralization was by design, IMHO.  The idea that intelligent people have not been observing and thinking about this over the last 100 years is impossible.  While they do not know the exact outcome, they are aware of the possibilities and have plans for each.  For example, the ruling clique have no problem going full Soviet, if the complex mechanism fails.  Ultimately it is about control and nothing else. 

Thu, 12/08/2011 - 08:50 | 1957812 BorisTheBlade
BorisTheBlade's picture

Ironically (this is what you are missing) they are so bad that it would take a positive black swan to avoid decomposition.

A miracle in other words, I agree, we definitely need one to avoid what is coming. Except, neither it depends on us to bring it, nor can we predict what it will be, or when, if at all, will it happen - by definition.

Black swans are just unexpected, "improbable" and unimagined events that look obvious in hindsight, and have a massive effect.

That's the problem that I have with the whole black swan concept - it is very vaguely stated and gives a lot of room for interpretation, not sure if even Taleb himself can categorize which event constitutes a black swan even on the hindsight and which is not. On the one hand, financial crisis was considered by majority as 'improbable', whether by ignorance or other reasons, by the impact it fits on the extreme side - i.e. fat tail event, it's the biggest financial event for the last 70 years or so and it affects and will affect millions of people and yet it's not a black swan:

  1. The event is a surprise (to the observer).
  2. The event has a major impact.
  3. After its first recording, the event is rationalized by hindsight, as if it could have been expected (e.g., the relevant data were available but not accounted for).

Where the financial crisis doesn't fit his own definition? And on the other hand, why blame journalists for using the definition in that context if they as observers didn't expect it? That's a major inconsistency in what pretends to be a called a theory. If anything, in his own words, whether the event is a black swan or not depends on the level of knowledge of the observer: i.e. for an absolutely clueless observer everything in hindsight looks like a black swan.

Thu, 12/08/2011 - 08:58 | 1957881 spiral_eyes
spiral_eyes's picture

Black swans are subjective. To a turkey at thanksgiving its killing is a black swan event. To the butcher, it is not. Black swans (the literal type) in Australia were known to Australians before European conquest, but not to Europeans.

2008 was a black swan to most observers (not to most of us here on Zero Hedge who are schooled in bubble theory), and Taleb's book came out at the same time. It's an unfortunate co-incidence that black swans have come to be equated with economic crashes, when that is not at all what Taleb meant. 

Thu, 12/08/2011 - 09:17 | 1957925 BorisTheBlade
BorisTheBlade's picture

 Black swans are subjective. To a turkey at thanksgiving its killing is a black swan event.

One has to go through experience of being a turkey pre-thanksgiving to say that. That's a very loose assumption. Moreover, turkey has to have some conscience to categorize the event as a black swan, which it doesn't possess. For a turkey, there is hardly any surprise - head goes off immediately and there is no benefit of hindsight either, it's gone together with its head. So where is a black swan here? It doesn't fit Taleb's own criteria #3:

 After its first recording, the event is rationalized by hindsight, as if it could have been expected (e.g., the relevant data were available but not accounted for).

Thu, 12/08/2011 - 09:42 | 1957995 whiskeyjim
whiskeyjim's picture

You are correct. But I do understand Taleb. But it is not what he implied in his article in Foreign Affairs, and that is the article i responded to.

If you read my paper, you will see that I agree with Mr. Taleb regarding complexity and black swans. It just isn't the problem with the artificial banking system and the government. We are watching a slow motion collapse; that we do not know exactly when it will arrive does not make it a black swan.

Thu, 12/08/2011 - 02:16 | 1957500 stirners_ghost
stirners_ghost's picture

"Sigma" -- another safe concept from the world of the Gaussian.

You obviously haven't read Taleb, either. Or perhaps his cold, acidic skepticism couldn't penetrate the thick broth of mystical horseshit you marinate in.

Thu, 12/08/2011 - 04:46 | 1957648 GoldBricker
GoldBricker's picture

Hahaha! Thank you. It only takes about 10 pages of Taleb to figure out what he thinks of applying the Gaussian curve to real-world events. It's the old drunk-looking-for-his-keys cliché.

Let's discuss some more books we haven't read. I nominate General Theory of Money, Credit, and Interest.

I would shamelessly plug my web site right about here, but I ain't got one, so instead of more of my bullshit, spend the time reading a decent book.

Thu, 12/08/2011 - 05:06 | 1957666 Oh regional Indian
Oh regional Indian's picture

My thick broth of mystical horseshit will eat your cold hard skepticism for lunch and dinner Bud. And Sigma is a concept? You think you understand distribution? Normal or otherwise? or you think it does not exist?

Inviolable, observational and expriential lessons are far better than bookrap. I suggest you study your own self. 

Very interesting how everyone negative here goes for the personal attack.

Oh and watch out for your fat tail and the batwing doors, will you?

ORI

Thu, 12/08/2011 - 06:05 | 1957700 spiral_eyes
spiral_eyes's picture

Yes, standard deviations are an abstract concept, ORI.

I don't agree with the personal attacks (easiest way to lose an argument).

Ironically, the idea that "Inviolable, observational and experiential lessons are far better than bookrap" is another of Taleb's favourite topics...

I think you'd really enjoy reading him.

Thu, 12/08/2011 - 06:15 | 1957708 Oh regional Indian
Oh regional Indian's picture

Of course it is s_e, of course. But it fits a "normal" distribution which is a fact of nature. It's visible, tangible. The normal distribution that is. Standard deviations are as abstract or real as any of our other constructs we've come up with to explain and/or predict the world.

And that's funny eh, read Taleb who says go out, touch, feel, experience the real world? I'm a bibliophile who has stopped reading things that don't matter so much anymore, especially in the face of what is coming up.

And yes, I always prefer being nice to the person, works better, good karma, the works.

ORI

Thu, 12/08/2011 - 06:47 | 1957724 UP Forester
UP Forester's picture

There are three kinds of lies:  Lies, damned lies, and statistics.

Thu, 12/08/2011 - 09:22 | 1957939 ucsbcanuck
ucsbcanuck's picture

ORI - In Black Swan you will find that Taleb actually agrees with you. The normal distribution is a fact of nature and can be used to characterise certain variables in nature very well e.g. height of adults.

However, there are other variables which are not well explained by the normal distribution. Therefore, it's wrong to apply a normal distribution to these variables.

Thu, 12/08/2011 - 00:09 | 1957211 slewie the pi-rat
slewie the pi-rat's picture

tyler put up an essay co-authored by Taleb and another professor a short while ago so maybe this is in dialgue with that, but it's all too complex for slewie!

Thu, 12/08/2011 - 04:40 | 1957647 GoldBricker
GoldBricker's picture

I guess that Taleb is like other iconic writers (including Keynes) now: he is frequently cited, seldom read.

Read him, folks, he's much better in print than he is on TV. Start with Fooled by Randomness. The Black Swan builds on Fooled.

For you literature majors, his alternate-timelines explanation of Robbe-Grillet's novels is better than anything I ever got from several French-lit PhDs I knew over the years, and not only illustrates his theories perfectly, but also meshes with science fiction. That alone made the book worth reading.

Thu, 12/08/2011 - 06:09 | 1957703 spiral_eyes
spiral_eyes's picture

Keynes is another fantastic example.

Ironically, the "Keynesians" are probably the biggest misunderstanders of Keynes. I love quoting Keynes at them to debunk their views.

Thu, 12/08/2011 - 08:27 | 1957817 Ghordius
Ghordius's picture

+1000 - I also love to quote Lord Keynes. And it's hilarious how he was "treated" by/in the US when he was in the British delegation to the US after the war, today he would probably get standing ovations everywhere with Nobel Prize winners licking his feet. Get an avatar, dammit.

Thu, 12/08/2011 - 00:58 | 1957340 CIABS
CIABS's picture

"I vacillitated between viewing such people as an actual conspiracy and simply seeing them as a tight-knit fraternity bent on dominating the world."

A tight-knit fraternity bent on dominating the world [and succeeding at it] is something other than a conspiracy?  I would think that the vacillation is between those things on one had and seeing the course of history as a blind juggernaut on the other.

"Most Zerohedge posters know what happened. The only question is if it was by design or stupidity."

I think that a few high-level people had a design-level awareness of things, and a lot more figured out where things were going as events unfolded.  There are always people who don't know what's going on, including many in high places.  Their actions might amount to "stupidity".  But the most important and interesting part of the story in hindsight is who had the design-level awareness and what was the design.  Going forward, of course, the most interesting and important questions are how will it all play out and what will the aftermath look like.

Thu, 12/08/2011 - 01:46 | 1957444 zorba THE GREEK
zorba THE GREEK's picture

Just because a Black Swan will not be needed to bring the house of cards down doesn't mean

there won't be one. The MF Global article above this one describes what could be the Black Swan

that no one saw coming.

Wed, 12/07/2011 - 22:00 | 1956992 nmewn
nmewn's picture

Both.

Wed, 12/07/2011 - 22:04 | 1957001 Yen Cross
Yen Cross's picture

 Best wishes , From a Christian, 

Wed, 12/07/2011 - 22:34 | 1957059 DoChenRollingBearing
DoChenRollingBearing's picture

@ nmewn, both that´s right.  Would green you, but this computer (here in Peru) that I work on at night has some faults...  So, please accept a virtual + 1 green!

Wed, 12/07/2011 - 22:55 | 1957090 nmewn
nmewn's picture

Back atcha...and I did a driveby on Yen's, just to screw around with the atheists junking him. They always seem so wound up & tight, they could pop a blood vessel or sumpin at any minute now and make a brand new discovery...new horizons & vistas and what not...lol.

You know me, always tryin to be helpful ;-)

Thu, 12/08/2011 - 02:19 | 1957504 The Navigator
The Navigator's picture

Did it for you - my computer is still working and the internets are up tonight.

Best, The Navigator

Wed, 12/07/2011 - 22:50 | 1957079 DaveyJones
DaveyJones's picture

stupid design or designed stupidity?

Wed, 12/07/2011 - 23:02 | 1957104 nmewn
nmewn's picture

"There is no Superman of bureaucracy. There are no rules or regulations that will prevent failure or negate investment on our road to prosperity >>>that we do not already know.<<< Our institutions have just consistently rejected them. >>>After all, leverage and redistribution is much easier than successful investment.<<< In a complex system, these bureaus would have died and been replaced by their betters long ago."

We're in the very best of hands.

Duck & cover ;-)

Thu, 12/08/2011 - 02:03 | 1957179 CompassionateFascist
CompassionateFascist's picture

Best piece I've yet read on the Debt Bomb. Even an economist can understand it. Anything this obvious, though, has to be purposeful at some level. Not, certainly, for (most of) the politicians...they simply want to get re-elected, +keep their snouts in the trough, and are trapped by special interests and group entitlements demanding, more, more, more. However, the Squid, the Redshield, and like operations know what they're doing: blow everything up and erect the True Zion upon the ruins. Too bad for them, they're not going to get away with it: they were unable to disarm the population of the hegemonic power...or prevent subordinate powers from getting nukes. Too bad for us too, but I think that more of us than them are going to survive the violent conversation that's about to commence.  

Wed, 12/07/2011 - 23:30 | 1957148 Stack Trace
Stack Trace's picture

Stupidity by Design

Wed, 12/07/2011 - 22:01 | 1956994 pkea
pkea's picture

no doubt by design using other's stupidity

Wed, 12/07/2011 - 22:01 | 1956996 kridkrid
kridkrid's picture

No way is/was it stupidity.  Credit/debt money isn't new and it isn't complicated and the end result it always the same.

Wed, 12/07/2011 - 22:21 | 1957034 A Lunatic
A Lunatic's picture

Or Apathy.

Wed, 12/07/2011 - 22:49 | 1957078 jonan
jonan's picture

if it is stupidity i tend to think there is hope, on the other hand if it is by design best lock and load, come and get them bitchez...the scary part is the no one will know what the answer is until it happens...

Wed, 12/07/2011 - 23:48 | 1957182 pods
pods's picture

Easy, if it was mere stupidity, then the moneyed class would not have bought the political structures to backstop them and shove the debt piles on the citizenry.

And since this has been going on since the first bankster figured out they could loan out credit, there is too big of a coincidence of events for it to be stupidity.

When these evens happen, as they always do, the banks foist their debt onto the central bank. Since the central bank prints the currency of the realm, they have access to tax revenue.

The banks merely reduce their leverage before the money spigot (austerity) gets turned off.

All the intial printing benefits the banks, who heal their balance sheets.  After inflation starts to take hold, the printing stops.

This allows the banks to respossess the property for pennies through default, which is a mathematical certainty during deflationary events.

Same game that has been played for over a century in earnest.

pods

Wed, 12/07/2011 - 23:32 | 1957153 El Gordo
El Gordo's picture

In Europe, stupidity.

 

In US, design.

Thu, 12/08/2011 - 04:37 | 1957645 pkea
pkea's picture

the good thing europe has capacity and may save us by bringing the fed and all US and global financial sector with their down to earth policies and properties of a more complex system:)

Thu, 12/08/2011 - 00:14 | 1957218 three chord sloth
three chord sloth's picture

Design or stupidity? I'd say neither. Necessity and arrogance is my take.

The necessity was of a purely selfish nature -- they needed to protect their own power and position. They had made extravagant promises to the people, these promises need steady growth to meet, the economy was no longer meeting those needed growth numbers organically, and that could cost them their jobs... so say hello to your new life partner, Mr. Perpetually Growing Debt. He's a friend of TPTB and will be staying on your couch... for the rest of your life. Don't forget to feed him.

The arrogance was thinking they could control the ever-bloating debt monster they created. The arrogance was inventing whole economic theories to justify perpetual debt growth... and thinking the economy would actually acknowledge those theories and obey them. The arrogance was believing they were the Indispensible Ones and the world would spin off its axis if they failed, were discredited and replaced. The arrogance was (and still is) thinking they are doing a good job, their ideas are working (and will work ever so much better if we just double down!).

So I guess you could say they had a design... but the damn world just refused to follow it, and nowadays they are just making it up as they go along, ad hoc and on the fly.

Thu, 12/08/2011 - 00:23 | 1957240 Seer
Seer's picture

Congratulations, you're the ONLY person who is close to getting it!

The inability to stoke the growth machine has resulted in this collapse.  This has been happening for quite a while now, mostly hitting the downside in 1970 (peak US oil production and USD [totally] off the gold standard).

But... if we only blame government then we clearly aren't understanding what really makes the world go, as this would happen even if there were no govts (as long as the driving economic forces were predicated on perpetual growth).

Thu, 12/08/2011 - 02:10 | 1957488 Max Fischer
Max Fischer's picture

 

 

Can you explain how peak oil production in the US resulted in this collapse?

Max Fischer, Civis Mundi

Thu, 12/08/2011 - 00:23 | 1957241 rbg81
rbg81's picture

Our system is like a greedy algorithm that makes the seemingly best local (short term) choices at the expense of what will work for the long term.  The short term concern among our political elite is getting re-elected.  The easiest way to do that is to spend $$ we don't have and go into debt.  Telling people NO causes pain.  Even people who claim they want to cut the deficit will balk when specific cuts are put on the table.

In short, we (Western Society) deserves the a$$ reaming that's coming to us.

Thu, 12/08/2011 - 01:11 | 1957370 tumblemore
tumblemore's picture

Cui bono? Who gains the most from deficit spending?

The banking cartels want deficit spending. The banking cartels buy the politicians. The politicians give the banksters what they want. Therefore the people who most deserve an a$$ reaming are the banksters. If and only if the banksters get theirs FIRST should anyone else even consider sharing the pain.

Thu, 12/08/2011 - 01:24 | 1957398 Seer
Seer's picture

"Who gains the most from deficit spending?"

Gains the most WHAT, and for how LONG?

Thu, 12/08/2011 - 09:59 | 1958065 rbg81
rbg81's picture

The banking cartels buy the politicians.

Really?  I often wonder who "owns" who.  I contend that over the last 2 decades, the Politicians forced the Banks to abandon what had been sober, time proven practices to further their political agenda.  The Banks may appear to benefit, but they have lost the ability to make their own decisions and control their destiny.  For example, few (if any) in the Banking community through Dodd-Franks was a good idea; yet it got passed despite their objections.  In the end, I suspect the Bankers dance to the Politician's tune.  At best, its become a symbiotic, but ultimately destructive, relationship.

Thu, 12/08/2011 - 15:46 | 1960078 tumblemore
tumblemore's picture

"contend that over the last 2 decades, the Politicians forced the Banks to abandon what had been sober, time proven practices to further their political agenda."

So the politicians funded the banking lobbyists and bribed themselves with their own money to change all the banking regulations?

Right.

Thu, 12/08/2011 - 03:27 | 1957598 fourchan
fourchan's picture

pragmatism is forsaking the future for the present

 

always leads to destruction

Thu, 12/08/2011 - 01:12 | 1957342 tumblemore
tumblemore's picture

"if it was by design or stupidity."

The basic scam is designed. The central banking fraud debases the currency over decades in the process transfering wealth from the people to the money-creating monopoly i.e. the banking cartel. At its most basic it's simply legalized counterfeiting. The trick is to keep the process going in a slow smooth regular way that doesn't spook the herd too early. When the eventual currency collapse occurs the guilty ones try and avoid the blame and then if possible start again with a new currency and repeat the scam again from the beginning.

However i think the 2008 crash was stupidity - or rather greed. They got too greedy and made their simple wealth-transfer mechanism too complex and it came unstuck and they've been trying to glue it back together again ever since.

Thu, 12/08/2011 - 04:31 | 1957634 pkea
pkea's picture

Sadly, at this point, the black swan event would be that everything will work out at least near term( a few months) and the markets will melt up higher with everyone on the edge in anticipation of apocalypse. The next week is pivotal for direction for next 2 3 months since the power balance is about 50-50 with the slight win for melt up at this point. I would expect early next week to be a bit down but should be up by christmas.

It is all done by design, including current transitory phase.

Thu, 12/08/2011 - 04:50 | 1957655 GoldBricker
GoldBricker's picture

Search for "The Occult Technology of Power" and read it. It's a design, a spec, for exploiting and directing the stupidity of others. It's the real Invisible Hand. But at nodal moments like right now, the outlines of the hand become visible for those willing to look.

Wed, 12/07/2011 - 21:57 | 1956986 Prepared
Prepared's picture

Some by design but mostly by sheer, utter stupid GREED!

Wed, 12/07/2011 - 22:09 | 1957012 Yen Cross
Yen Cross's picture

 Design is built on ( Back-How ) , theory.

   Run for your life, when the masses reset the rule of law !

Wed, 12/07/2011 - 22:05 | 1957003 jekyll island
jekyll island's picture

Nixon was a black swan.   

Wed, 12/07/2011 - 22:18 | 1957031 kridkrid
kridkrid's picture

Oh, I don't think Nixon was any different than a large number of his presidential predecessors.  He represents a quite natural progression, I think.  He's no different than Wilson or FDR or LBJ, from where I sit.

Wed, 12/07/2011 - 22:52 | 1957083 DaveyJones
DaveyJones's picture

don't tell trav

Wed, 12/07/2011 - 22:06 | 1957007 Right-on Left-off
Right-on Left-off's picture

Like the editorial sez: It's by design.

Stupidity?: No, like the editorial sez, it's just an easier, more short-sighted, criminal method to make money rather than investing.

Wed, 12/07/2011 - 22:08 | 1957010 ExpendableOne
ExpendableOne's picture

I would lean towards design.  They can't all be that stupid right?  right?

Wed, 12/07/2011 - 22:10 | 1957016 Yen Cross
Yen Cross's picture

 Right! Absolutely.  

Wed, 12/07/2011 - 22:10 | 1957013 oogs66
oogs66's picture

black swans, unintended consequences, or transitory...which is the most overused, incorrectly used word of the year?

Wed, 12/07/2011 - 22:57 | 1957093 VelvetHog
VelvetHog's picture

None of those.  It's "crisis".

Wed, 12/07/2011 - 23:27 | 1957146 oogs66
oogs66's picture

I forgot Lehman moment and bazooka

Wed, 12/07/2011 - 22:11 | 1957018 MarkTwainsMustache
MarkTwainsMustache's picture

Note to Jim Lewis, if you want to immediately lose creditibility on a paper start out with "Nassim Taleb is wrong about the financial crisis and Black Swans."  It shows incredibile ignorance and proves that you almost certainly have not read either of his first two non-academic books.  

Wed, 12/07/2011 - 22:14 | 1957023 Yen Cross
Yen Cross's picture

The first two? Heck I love Mark Twain!

Wed, 12/07/2011 - 23:00 | 1957098 topcallingtroll
topcallingtroll's picture

I would agree with you mark.

Where nassim is wrong is in predicting the yield curve. He missed the rise in treasury bond prices and predicted inflation, but to say nassim taleb is wrong in general about financial markets, or that unregulated free market financial markets are more complex than regulated financial markets shows someone who didnt understand taleb even if we give the benefit of the doubt that he read it.

It also shows a lack of understanding of complex systems theory.

Once a system meets all criteria for a complex system then it is complex. There are not degrees of complex systems just as there are no degrees or gradations of infinity.

Also a general statement of nassim being wrong is like saying physics is wrong. It is a statement with no value.

Nassim pointed out that systems were too compkex to model with assumptions of normal distributions. You use nassims ideas to bet against a model, not in support of a model. In essence nassin and goedel said that all models are wrong because comolex systems have emergent properties which cant be predicted by system models.

Modeling with the assumption of normal distribution of outcomes underestimates rare outcomes in complex systems. This is how nassim made money, buying underpriced way out of the money options and waiting for the one huge payout that occurs more frequently than expected based on the price of those options.

Simple really. The same strategy works with sports wagers in that horses dogs and teams wirh the longest odds against them often have the odds of winning underpriced. So the willungness to accept steady losses in wait of the one huge payout is the correct strategy but psycholigically difficult.

Wed, 12/07/2011 - 23:49 | 1957186 Yen Cross
Yen Cross's picture

 Lets get complicite. Yield curves?  Which yield curves?   They are so general these days. CNBS says so!

I like you

Thu, 12/08/2011 - 09:01 | 1957884 Tao 4 the Show
Tao 4 the Show's picture

Good post TCT. I basically agree with what you said and would go on to a bit of finer granularity. At the level of the idiots who make market models and get Nobel prizes, Taleb is a prophet. At the level of practical trading, Taleb is a clever guy. At the level of the serious academic study and development of complex system theory, he is fairly run-of-the-mill. At the really fine scale of accuracy, he is often confused. The latter doesn't matter much, however, in terms of the social role he is playing.

I won't go into detail regarding technicalities as it's mostly irrelevant here, but just mention that he often neglects the basic ideas of stationarity. This is easy to do when one makes sweeping application of well, but narrowly developed mathematical ideas to situations far beyond the truly comprehended scope. As one who likes to do the same for the sake of trying to understand the world, though, I'm not going to criticize loudly.

Thu, 12/08/2011 - 00:25 | 1957249 slewie the pi-rat
slewie the pi-rat's picture

@ twain's_mustache:  if you want to immediately lose creditibility on a paper start out with "Nassim Taleb is wrong about the financial crisis and Black Swans."

kind of an attention-grabbing device to try to get a person to read what he wrote;  so i didn't

 

Wed, 12/07/2011 - 22:15 | 1957021 Jack Burton
Jack Burton's picture

It seems almost a relief to have lived to see today's problems, because way back in the 1980s I felt that we were setting up a system that was headed for failure. Especially the deficit spending monster that began to gain steam in that deacde. By the go go 90s I was beginning to doubt the coming collapse, but the the rise of the tech bubble was a good sign that we were reaching insane bubble blowing to keep the unsustainable going. Then that housing bubble was blown and madness reached new heights!

Waiting for housing to blow was torture, but it did blow and exposed all the structural problems that began to take off in the 80s. It was a long time in coming, and the government and Federal reserve have proved able to master extend and pretend to levels I never dreamed possible. But here we are on the edge of reality!

As George Bush said once "This Sucker Is Going Down". How right he was. This sucker in the US is going down, Europe is going down, Japan is going down. As for China, I am not informed enough to say, but I have read some say China is going down too.

Interesting times, lets all meet back here in Dec. 2012 and see what has come to pass!

Wed, 12/07/2011 - 22:48 | 1957048 RichardP
RichardP's picture

lets all meet back here in Dec. 2012 and see what has come to pass!

I predict 12-12 will find the world pretty much as it is today.  Minor crises coming and going.  Small morphings going on; no great collapse.

Or else maybe the antichrist will have assumed control by then!

Oh, and China will be testing a new high-tech drone over Butte.

Wed, 12/07/2011 - 23:47 | 1957178 Yen Cross
Yen Cross's picture

Speaking of ism's            WTF are you talking about?  Can you say Interbank Fixing?

Thu, 12/08/2011 - 12:56 | 1959031 RichardP
RichardP's picture

Do you think that 12-12 will find thinks much different fom today?  How drastically different is life today from 12-11 - in general?  And I'm not talking about the folks who lost their house to forclosure in 2011.  I'm talking about like in general for the average joe and josephine.

Thu, 12/08/2011 - 04:26 | 1957635 GoldBricker
GoldBricker's picture

Hey goomba, I was there too and remember the freeze-dried food, k-rands, ammo, doom newsletters (remember those?), and all that stuff. Doug Casey's Crisis Investing had come out and many of us were expecting something real bad in the wake of the Iran-hostage thing.

What we had then was a creditor country with good credit. We didn't realize that the Fed could jack the 30-year bond to 15% or so and keep it there for 2 years; we had that much leeway! Don't look for that solution to re-appear on this side of Whatever-It-Is that's coming.

All in all, at least a well-written article, even if it tells us nothing new. My only quibble is the use of "Basil"; who's that? St. Basil? Basil Rathbone? Dude, it's either "Basle" (French) or "Basel" (German); it's not "Basil". Hire a damn English major (they're cheap, I understand) to proofread if you can't do it yourself.

Thu, 12/08/2011 - 07:37 | 1957747 Moe Howard
Moe Howard's picture

I remember quite well sitting with my brother in the late 1970s drinking beer and wondering how long the USA would last in a service economy, the expression "I'll wash your shirt, and you'll iron mine" was uttered. We discussed how as children we each tried to create a service to get the other guys money, I had a penny washing business, he would make your bed for pay. It all rested on outsiders creating the real value and feeding the cash in. Once the outside cash stopped, so did the childish service business.

Thu, 12/08/2011 - 10:31 | 1958018 Archduke
Archduke's picture

+1 fail on Basil and marginal inrease of debt.

 

and while the words are his and are sound, the graphs and stream of arguments

are mostly sourced and rehashed from others, say ZeroHedge or the Market-Ticker.

not only is this plagiarized or uncredited but it presents epic editing fails.

 

oh. and ZH edit fail.  author's name is jim leis, not lewis

Wed, 12/07/2011 - 22:14 | 1957022 wisefool
wisefool's picture

Good article. As recently reported on ZH. (sorry for the regurgitation, but form follows function)

"My Name is Joe Biden. This man here represents the treasury and he brought millions of dollars"

This is the typical politician (who is in charge of the regulators) americans have voted for for the last 40 years, and thanks to both Fox news and the MSNBC propaganda, they are the only type people can possibly check a box for. Abortion, Food Stamps, Bombing Brown People, you know, american exceptionalism. I imagine it is similar in Europe.

Biden on Corzine: http://www.youtube.com/watch?v=xm3VMrKqJSA

If I was a younger man, I'd seriously ex-pat to china like Jim Rodgers.

 

Wed, 12/07/2011 - 22:18 | 1957030 Seasmoke
Seasmoke's picture

it was done on purpose......its the law of the jungle

Wed, 12/07/2011 - 22:22 | 1957038 Yen Cross
Yen Cross's picture

 Dont make me get " Paragraphical" ...    The copy paste junk is old.  J.R. is the master of disaster. 

  I'll take the island  approache.

Wed, 12/07/2011 - 22:22 | 1957040 jekyll island
jekyll island's picture

The paramedics brought a 22 year old guy in full arrest to the ER the other day when I was working.  He had relapsed on his drug habit and overdosed on heroin.  His girlfriend, also a user, said she saw him laying back in the chair making gurgling noises when he was breathing.  About an hour later she called for help.  He was cold and blue, had been down for quite some time.  We just pronounced him, didn't continue CPR.  The GF got hysterical, said she had seen him ten minutes earlier and he was alive.  Yeah right, I thought.  This guy's in asystole and is already room temperature.  That doesn't happen in ten minutes. With both of his parents in the room  she looked at me and said:  "if I had called earlier, would he still be alive?" Great, just another day at the office with the parents of a dead drug addict and his druggie GF.   I let her off the hook, but we all know the real answer to the question.  That's what is going to happen to our economy.  We are going to overdose on QE after deflation (because they won't get that right either) and then some genius in power will say:  "if we had only acted sooner."  The debt glacier is going to be shored up by an avalanche of printing which will result in a hurricane of hyperinflation which will result in the shitstorm that removes the politicos and banksters and ushers in the return of sound money.  I'm just pissed that my family is going to have to go this to get to the other side.   

Wed, 12/07/2011 - 22:31 | 1957056 Escapeclaws
Escapeclaws's picture

Have you considered the possibility that there is no other side? Or that you may wish there was no other side when you get there?

Wed, 12/07/2011 - 22:39 | 1957067 kridkrid
kridkrid's picture

You have to consider the possibility that God does not like you. He never wanted you. In all probability, he hates you. This is not the worst thing that can happen.

Wed, 12/07/2011 - 23:04 | 1957092 hedgeless_horseman
hedgeless_horseman's picture

 

 

Sad, Kridkrid, that not enough people here have read either Fight Club, or The Gospel According to John.  

Wed, 12/07/2011 - 22:34 | 1957060 kridkrid
kridkrid's picture

Why did you let her off the hook?  Not saying I wouldn't have done the same... I really don't know what I would do.  I guess you think her life is shitty enough without the truth?

Thu, 12/08/2011 - 00:28 | 1957258 Yen Cross
Yen Cross's picture

Unions -16

Thu, 12/08/2011 - 08:26 | 1957641 GoldBricker
GoldBricker's picture

Good story, good analogy.

I live in the eurozone. Here "acting sooner" is understood as 'getting Germany or the Fed or whoever (just not us) to pay our debts yesterday'. Acting sooner is never interpreted as buckling down and getting off heroin (credit) a month, a year, a decade ago. Sure it hurts, you'll feel like you're dying (and I understand that some do). But when you're on the other side you'll look back and ask how you could ever be so stupid as to do that to yourself.

That's where we are now. Let's hope we make it far enough to look back on this time and be thankful that we made it through.

Wed, 12/07/2011 - 22:26 | 1957046 Sophist Economicus
Sophist Economicus's picture

Bravo Jim!  

Wed, 12/07/2011 - 22:27 | 1957047 gwar5
gwar5's picture

Just read Currency Wars by Rickards. Pretty good, but you can skip the historical stuff and go to the last two chapters -- on Complexity Theory and Endgame for the summation.

 

Complexity Theory says complex systems are enormously energy dense (don't think just oil here) and the input requirements are exponential. Civilization is the most complex and energy dense system of all. Units of currency represent the stored value, the fuel, of that energy. We passed the point of diminishing returns years ago. We are now at the point where the criminals and miscreants are trying to stuff the input channel to try to maintain the same outputs, which is impossible, as we at ZH all know.  

Good News: The size of the crackup is limited by the size of the complex system. Bad News: This time it's global.

 

 

 

 

 

 

 

Wed, 12/07/2011 - 23:58 | 1957199 CompassionateFascist
CompassionateFascist's picture

No, I thank there is "some" chance that nuclear weapons will not be used. Some. Not much.

Thu, 12/08/2011 - 00:59 | 1957343 CPL
CPL's picture

http://www.csmonitor.com/World/Asia-South-Central/2011/1207/Rumors-of-si...|+All+Stories%29

 

It's okay, the only US friendly native in Pakistan is dead as a stone...local reports are that he is dead.  MSM he's doing just fine.

 

lol

Thu, 12/08/2011 - 01:35 | 1957424 Seer
Seer's picture

Energy dense!  Yup, EXACTLY!  That's been my argument for why a NWO could NOT happen.  Yeah, sure, people will TRY, but due to this energy complexity it WON'T happen, cannot happen.  Figure in that this is obviously a contraction and it should be obvious that we're going the OTHER direction, fragmentation and not cohesion.

In the end governments, ANY large organization, WILL FAIL.  I'm just not seeing any alternatives to us ending up as tribal communities.  NOTE: I am NOT advocating for anything, just providing forecasts based on nature (and mankind's history).

Wed, 12/07/2011 - 22:30 | 1957051 Stuck on Zero
Stuck on Zero's picture

This monograph is right on.  We have traded the complexity of individual behavior for the simplicity of central control.  Firewalls are down.  Rapid adaptation is gone.  Common sense is out the window.  What's bad is good and what's good is bad.  It's all a recipe for disaster.

Thu, 12/08/2011 - 02:31 | 1957528 malek
malek's picture

You have it confused.

Nature shows us complexity can emerge from a simple set of rules, with a few crisscrossing feedback loops.

However today's simple central control comes with an uber-complex regulatory and legislative apparatus - partially to try to micromanage what isn't allowed to self-correct anymore, and partially to obfuscate cause and effect of  official meddling.

Wed, 12/07/2011 - 22:36 | 1957065 DavidC
DavidC's picture

An enjoyable read. And another that confirms the feeling that when this sucker goes that's it.

DavidC

Wed, 12/07/2011 - 22:41 | 1957070 hedgeless_horseman
hedgeless_horseman's picture

 

 

Our monetary policies do not defend inflation; they fund deficit spending and protect banking institutions. 

I fixed it for you.  

Wed, 12/07/2011 - 22:44 | 1957071 ebworthen
ebworthen's picture

 

 

The real Black Swan is that a majority of people think nothing is wrong.

Wed, 12/07/2011 - 23:01 | 1957097 RichardP
RichardP's picture

How well do you know the majority of people?  When whatever-it-is-that-is-coming actually comes, do you think the majority of people will even know it came?  Will the predicted "coming disaster" make their lives any more miserable than they already are?  If the answer is no, then nothing is wrong, for them.

Thu, 12/08/2011 - 01:38 | 1957429 Seer
Seer's picture

Or perhaps they realize that there's really nothing that they can do?

I'm one to refute the notion that there's always something that one can do, but I'm just thinking that most just cannot get any real traction to undertake any meaningful change: especially if one has a partner that just isn't on the same page; and with kids it's also pretty hard (if you have little wealth, well, running all this shit through your brain is only likely going to make you feel worse- suicide starts looking better).

Thu, 12/08/2011 - 09:07 | 1957900 YHC-FTSE
YHC-FTSE's picture

Exactly. A Black Swan by definition is a retrospective label, but I think the gist of this article is entirely correct. 

 

I think it is the amplitude of the Black Swan that will surprise everyone, rather than its occurence which is highly expected. People often talk about the (1) domino effect, (2) implosions, and (3) socio-political turning points on this matter. What we have, right now, are all three:

1) In the private banking sector in the form of toxic debts, and associated outstanding derivatives, which according to the IBS is around 700 trillion dollars worldwide - highly likely to bring down the retail banking sector along with the investment banks that are so deep into corruption and fraud, nobody can tell where the corporations end & politicians begin.

2) In the sovereigns in the form of rising GDP/Debt ratios, rating downgrades (& associated interest rate costs), often hiding grossly mismanaged and insolvent local governments in large countries. In many instances, we have breached margins where countries cannot service their own debts, and must pay with the debts of other nations, while at the same time implementing deeply unpopular austerity measures and facing decreasing tax revenues. It is a cash flow crisis on a national scale.

3) Unprecedented (That is the key word here) disparity between the wealthy and the rest, rising domestic tensions, the popularization of extreme ideologies, and nationwide dissent that will be crushed ruthlessly if it escalates to armed violence, which in turn will cause a backlash of revolutionary proportions (See Egypt (Unarmed), and Syria (Armed)). 

 

Will it be a slow shit storm (The boiling frog effect), or a sudden jolt into reality? Only time will tell. 

Wed, 12/07/2011 - 22:51 | 1957080 Irene
Irene's picture

Nietzche called it over 100 years ago.  What we're witnessing now is just the inevitable conclusion.

 

Wed, 12/07/2011 - 22:58 | 1957081 shokdee
shokdee's picture

The May/June 2011 issue of Foreign Affairs published an article //The Black Swan of Cairo// by Taleb and Blyth. They argue that complex systems must be allowed variability. Suppressing it in the pursuit of stability inevitably leads to larger variability later, often in catastrophic form.

The target audience of CFR members know about "order out of chaos", it has been the modus operandi of the elite since the 1500s. To me the CFR article was back-slapping and justification to leaders - keep very tight control, possibly the system will break down (due to "complexity" and "black swan events"), then act decisively and tighten your grip even more.

This follow up article by Jim Leis //Black swans and complexity// is basically a rebuttal to the Talib and Blyth fluff piece. <<The ongoing financial crisis is not the result of a perplexing phenomenon of complexity>>  Instead it is the result of decades of "oligopolistic bungling", what I call opportunistic bungling.

Just as the Twin Towers and WTC7 disappeared into their own footprint, so the financial system was set up as a big time bomb that is now imploding. Look at the research out of the think tanks in the 1960s and 1970s, the UN, Club of Rome. and so on, the proposal was a new post-industrial economy with zero-growth. What is happening today is no black swan but a controlled demolition.

Wed, 12/07/2011 - 23:53 | 1957194 anonnn
anonnn's picture

...Just as the Twin Towers and WTC7 disappeared into their own footprint, so the financial system was set up as a big time bomb that is now imploding. ...

That is a damn good clue...that points to one if the 1st Principles [which are used destroy the complexity-monster].

A 1st Principle: when credible investigation produces no valid result that clarifies the situation, there is always omission of at least 1 vital datum. When enough vital data has been found and considered, complexity drops and the situation clarifies.

There are other 1st Principles. I suggest we locate and codify  them and make them widely available. They are the wisdoms of real education.

Education: from Latin e, out of and ducere, to lead. I.e.,IMO, true education leads one out of whatever one wants to be free of [e.g. starvation, poverty, incompetence, pain, etc.]. It ain't schooling.

Wed, 12/07/2011 - 22:53 | 1957086 navy62802
navy62802's picture

Speaking of black swans ... tomorrow is Corzine's big day on the Hill. That could turn out to be a black unicorn, actually. I guess we'll see.

Wed, 12/07/2011 - 23:51 | 1957190 navy62802
navy62802's picture

Oh well. Looks like it won't be a black unicorn or even a black swan after all.

Corzine expected to plead the Fifth:

http://www.nypost.com/p/news/business/exclusive_fifth_house_hearing_thur...

Wed, 12/07/2011 - 23:04 | 1957106 Georgesblog
Georgesblog's picture

I don't write much fiction. Perhaps I should. I need to write a futuristic novel in which possession of paper currency is a felony. I'll have to let that thought germinate, overnight. I may wake up with a title for it, who knows?

http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/

Wed, 12/07/2011 - 23:58 | 1957200 pods
pods's picture

Better hurry up George and get writing or you won't be writing fiction.

pods

Wed, 12/07/2011 - 23:04 | 1957109 VelvetHog
VelvetHog's picture

Corzine will walk.  He's too inept to fail.

Thu, 12/08/2011 - 08:34 | 1957829 GoldBricker
GoldBricker's picture

It's not that. He knows where too many bodies are buried, and he's too well known to bump off.

It's the Scooter Libby Paradox (I claim patents, copyrights, trademarks, dibs, etc.) The only resolution to this paradox is a presidential pardon, which will be forthcoming when he is ready to rat on some bigwigs or Obama is in the lame-duck pardon-everyone zone, whichever comes first.

Wed, 12/07/2011 - 23:04 | 1957110 brodix
brodix's picture

Complex systems reset routinely! It's called death. It's been going on a long time.

 Newton said that for every action, there is an equal and opposite reaction. What he forgot to mention is that while the action is linear, the reaction is non-linear, so you can only predict that it will happen, not when it will happen, because when we know something will happen, then we react accordingly. The precipitating events are those which are unforeseen, such as a Tunisian fruit peddler setting himself on fire.

Wed, 12/07/2011 - 23:10 | 1957119 wisefool
wisefool's picture

Here we go: Child Dies After Being Shot by Mother Inside Texas Welfare Office

http://www.foxnews.com/us/2011/12/07/2-children-in-critical-condition-after-shot-by-mother-inside-texas-welfare/

May the lord protect and keep them. rant on: And Thanks for the complexity you dipshit buerocrats. She probably fell asleep at page 65,666 of that tax code. Baby Daddy dont read tax code cause he dont pay child support or retail taxes either. 

Wed, 12/07/2011 - 23:44 | 1957164 wisefool
wisefool's picture

what is with the junk? Matricide+Infanticide should be right up there with self immoliation. This woman lived in an RV in a trailer park, and they wanted her to fill out dozens of pages of forms to get $250/month of food stamps. She probably paid higer tax rates than Mitt Romney in her younger days and thought the government should help her instead of a charity that she had not paid into. In my neck of the woods I regularly see people wearing gold and driving late model cars using food stamps, cause they are good at filling out forms. not snarc.

EDIT: Or would I have avoided a junk if I posted a link about Bubba Clintoon getting $50,000/month from MF Global, or GWB getting a tax payer funded stadium in texas giving him his only businessman cred?

Thu, 12/08/2011 - 00:04 | 1957208 pods
pods's picture

Probably the use of the word "Lord" if I had a guess.  

As to your post, I could never imagine having to go into one of those places.  That level of humiliation would have to be shattering to one's morale and self worth.

pods

Thu, 12/08/2011 - 00:14 | 1957219 wisefool
wisefool's picture

I will use the non-denominational Good Lords name for just and healing purposes where appropriate. Blankenfeild is younger and probably in better shape than me but he can come try to kick my ass anytime he wants. I will not seek him out because I am a pacifist.

as far as humiliation before the "complexity" , I truly hope some courageous journalist pulls her lifelong tax forms and matches them up to Romneys and G.E. "Sorry IRS we made 15B in profit this year, but we are pretty sure we are going to lose 15B next year so suck it. Give us those sweet, sweet tax credits and that TARP money for our G.E. Capitol division executives"

Thu, 12/08/2011 - 07:49 | 1957753 Moe Howard
Moe Howard's picture

Give me your tax money or I'll shoot myself and my two children.

Surely there is a better alternative than that.

And the criminal activities of Bubba Clintoon and GWB make the above moral and ok?

We don't know the details of that woman's life, by design. We only know she killed herself and shot her two children because she didn't get some SNAP money she partially requested months ago. How Bubba Clinton, GWB or the moon and sunspots for that matter have anything to do with it, I don't know. I do know that people that live in better houses than me, that drive better vehicles than me, that wear more expensive clothes than me, use SNAP to buy steaks in front of me at the grocery store when I am buying ground chuck. So I have to think how disfunctional must you be to not be able to apply for SNAP with two dependant children - yet still be able to aquire a gun and rounds.

Wed, 12/07/2011 - 23:21 | 1957131 Spigot
Spigot's picture

I am sorry, Jim Lewis, that you do not understand what Taleb writes about. Side swiping him to agrandize your own standing is really cheap.  Maybe you could just state your case and let it rest at that. I do not believe that Taleb would disagree with what you wrote. And what you wrote did not contradict what he has written about. Read his work if you have a few minutes.

Thu, 12/08/2011 - 15:52 | 1960102 whiskeyjim
whiskeyjim's picture

if you read my paper, you will see that I do agree with Taleb. I also believe his work is genius. I just disagree with his analogy in foreign affairs.

Wed, 12/07/2011 - 23:24 | 1957138 Yancey Ward
Yancey Ward's picture

The fundamental flaw is that people want something for nothing.  It is our nature.  Mother Nature, of course, couldn't give a flying fuck what humans want, but politicians promise, and we want and <i>need</i> to believe this promise.  It is this flaw in our nature that leads us down this road.  However, the bright side, such as it is, is that what we want matters not in the long run.

The Lewis piece was on target, and 100% correct in it's insights, but it is the sort of thing that will only be heeded by those who need no persuasion.

Thu, 12/08/2011 - 01:44 | 1957442 Seer
Seer's picture

"The fundamental flaw is that people want something for nothing.  It is our nature.  Mother Nature"...

Conservation of energy.

Compare with spending many hours laboring in order to purchase some iCrap.

Wed, 12/07/2011 - 23:31 | 1957150 non_anon
non_anon's picture

just like the banksters and corrupt politicians that created the FED a hundred years ago, todays banksters and corrupt politicians are stealing from the future generations to pay for todays bribes and kickbacks to each other, but in some not so distant future this will end

Wed, 12/07/2011 - 23:34 | 1957158 Piranhanoia
Piranhanoia's picture

It has come down to their ability to believe up one custom tailored Deus ex machina.  

Wed, 12/07/2011 - 23:35 | 1957160 sasebo
sasebo's picture

Great!!!!

A few tidbits stood out to frame the big picture for me.

It seems to all boil down to the loss of the mechanism where banks simply mediated loans between savers & entrepreneurs to form new or grow exixting businesses. And make the economy & jobs grow. With the Keynesian emphasis on total demand, Greenspan & Bernenke lowered interest rates to turn savers into consumers. And allowed banks to print new money and invest in all the false capital & assets we see floating around in the dream world that is our financial system. And lend newly printed paper money to the guvmunt, consumers & themselves.

So the economy is not growing because we're consuming everything & increasing debt to invest in meaningless crap. So what else is new? 

 

Wed, 12/07/2011 - 23:50 | 1957188 wisefool
wisefool's picture

Dont forget the trump factor. Bankrupcy should be a nessecary, but solem process having long term effects on the petitioner. then there is Donald Trump, King Maker for the republican party.

Wed, 12/07/2011 - 23:53 | 1957193 Yen Cross
Yen Cross's picture

 What is beat down? I'm still long ( USD ), and GBP after this last dip.

Thu, 12/08/2011 - 00:28 | 1957259 Flakmeister
Flakmeister's picture

Where to begin?

Demand brought forward via financialization?

Was it part of a master plan or just simple greed? I definately lean to greed as it was a win-win situation as long as the bills could be paid... People got rich and everyone could have what they wanted now...

Was there a lack of leadership?

Hell yes, Greenspan was asleep at the wheel. The buck needed to stop there. I honestly think that Alan thought markets are rational and self regulating. Why? All of human history has told us otherwise... Fiat money gone wild and bubbles have  long financial histories... Bubbles want to form....

Was the system sustainable?

 Yes, with the assumption of infinite growth.  Could any rational person belief this. No, but if they knew that they could exploit the system and grab what they could, why would any detail like that bother them...

Was it preventable?

Yes, however the way to prevent it would have ideologically repugnant to most people...The growth meme,  the illusion of wealth in the form of debt, is too deeply entrenched.... Once it became clear that the jig was truly up, 2003(?)  there was no way to stop it, stopping is would have required wisdom in the 90's....Remember, "Irrational Exuberance?"... 

Conclusion:

The mess that the Western world finds itself in is not the result of some conspiracy. Rather, the product of like-minded greedy sociopaths, short sightedness,  and Peak Oil, the Blackest of All Black Swans....

 

Thu, 12/08/2011 - 01:10 | 1957364 wisefool
wisefool's picture

Demand brought forward via financialization?

You mean like in housing? In my generation the step after the family home (empty nest) was a small snow bird house that became the permanent home in retirement or not. In Krugman's world, we had to add a special step. The 4500 sq ft new construction spec McMansion in for those 10-15 pre-retirement years, and assume some younger person was going to want your floor plan, 15 year roof and those precious chinese fixtures and drywall that are now horribly dated, and they will pay twice as much as you did for it cause you had such good taste! Not to mention that they called it the Boomer generation for a reason ...

Thank goodness for the internet and places like ZH that are going to be complete historical record of these idiots, instead of McGraw Hill 20 years from now blaming this clusterfrak on planet Eeline altering our brainwaves and the evil savers too!

Thu, 12/08/2011 - 07:59 | 1957760 Moe Howard
Moe Howard's picture

Exactly right brother.

My own daughter, a college grad, didn't get it. I was remodeling our kitchen back in 2006, and she called and asked if I was going to "flip the house" for a profit. I explained that the experts claimed the kitchen and bath were the best investment for remodeling and selling, you would only LOSE 50% on your investment. There was silence on the other end. I then explained property taxes, interest on mortgages [we had paid off our house a few years before, after 7 years], inflation, maintenance costs over the years, and the fact I would have to live somewhere, so if I did sell our home for the current prices, I would have to purchase another at the same current prices, so any imagined profits on our modest home would go toward the new one, plus all the vampires that suck off RE sales and purchases. In other words, I explained reailty to her, and explained i remodeled so we could enjoy our home, not because it was a good investment - that, in fact, it was a poor investment, just like a new automobile.

She turned around a purchased a home right before the RE crash. I wasted my breath.

Thu, 12/08/2011 - 01:22 | 1957369 Artful Dodger
Artful Dodger's picture

"There is no Superman of bureaucracy." Ain't that the truth.

 

Speaking of complexity and bureacracy, too much of the economy consists of institutionalized, pre-determined "transactions" that add little value. When my government employer has to "consult" Dell (Dell, really?) to determine what  sample size would provide a confidence level (lol); when my employer and private insurance companies and pension plans exchange funds in bureaucratically predetermined ways that accomplish little other than create facades of security; when separated couples and people who want to make wills pay absurd amounts for largely standardized administrative "legal" work... who benefits? Of course we know the answer. The flow of funds, once in place, has an inertia that is almost unchangeable, and nobody in a position of power has any incentive to analyze and criticize and change that flow of funds. A good half of GDP has got to be a sham, I say. The first step (he says naively) is to get the government goons and their (public) union trough-feeders down to as few as absolutely necessary. Another step is to reduce regulations and government backstops that are perverse incentives to making rational individual and institutional choices. (Why do I _have to be_ in the pension plan?) Along the way I'd like to see "auditors" cut down to size. (Yes mr. junior auditor, we really can count inventory without you checking up on it. Your company is getting how much of my tax money for the final generic report that never changes anything?)

I realize the above examples are hopelessly minor in light of the global financial catastrophe, but that's the point; global finance is the ultimate clusterfuck of institutionalized fund flows that nobody can even answer for, except in the back rooms where the "beneficiaries" laugh about the largely predetermined system that has made them rich out of all proportion to effort. But when the system finally shows cracks, who pays the perennial "keep it going" fees? All of us.

 

Thu, 12/08/2011 - 01:22 | 1957393 hannah
hannah's picture

you need to re-read taleb....the reason black swans 'work' is exactly because we ignore the risks.....we know the shit will hit the fan....it is the fact that everyone ignores the risk that allows a black swan to happem.

Thu, 12/08/2011 - 01:31 | 1957412 spekulatn
spekulatn's picture

5 Stars, Mr. Lewis. I just finished re-reading the Foreign Affairs article which timed perfectly with this post by ZH. I'm getting to the point where I could give a shit how we got here. Instead, I need to prepare properly for what's ahead.

I'm learning to "be flexible." (Thanks Laurel Kenner @ dailyspeculations.com)

http://www.dailyspeculations.com/wordpress/?p=6996

 

 

Thu, 12/08/2011 - 01:50 | 1957454 AndrewCostello
AndrewCostello's picture

To put it in perspective, economists were warning of this crisis in 1903, so how anyone can possible say they couldn't see it coming is a mystery.  Or they are lying.

 

Read:

http://www.amazon.com/Simple-Wealth-Mr-Andrew-Costello/dp/1463523017/ref

Thu, 12/08/2011 - 02:47 | 1957551 optionmillionaires
Thu, 12/08/2011 - 04:45 | 1957646 rufusbird
rufusbird's picture

The article has the same meaning without the first sentence. I never doubted that events other than a "Black Swan" could take down the system. But I also accept that an unexpected event could also do the same (thnk MF Global). If failed sovereign debts finally cause a triggering event in the CDS pool and it causes big banks to fold like a row of dominoes, are we going to call it a "Black Swan" even though we are predicting it?

Thu, 12/08/2011 - 05:35 | 1957681 JarJarBonks
JarJarBonks's picture

Dear Jim,

Please the next time you see an "easily calculated" crisis like this one tell it to everybody !!

You have just make an "a posteriori analysis" here.. It's ridiculous..

Thanks.

Thu, 12/08/2011 - 06:10 | 1957704 williambanzai7
williambanzai7's picture

I don't think Taleb thinks what is happening now is a Black Swan event. The world is just in a perpetual state of denial.

He knows exactly what s coming and is quietly setting up his trade somewhere.

Thu, 12/08/2011 - 07:54 | 1957757 Bicycle Repairman
Bicycle Repairman's picture

"When Basil increasingly allowed both higher bank leverage and incestuousbackstops to increase risk and interdependence"

Basil  Fawlty?

Thu, 12/08/2011 - 08:09 | 1957761 Zero Govt
Zero Govt's picture

"..this macro crisis ..easily calculated by any actuary armed with the knowledge that governments were not investing tax streams, but stealing them for current consumption."

Bang on the button with that statement

"Our monetary policies do not defend inflation; they fund deficit spending and protect banking institutions."

Spot on too

"..the monetary system ..is an artificial hierarchical oligopoly.. pasted on top of complex economies and kept alive by increasing leverage and bailed out by equally non-robust, frail self-serving governments.."

You hit the ball out the park there as well.

So how to end this totally man-made false parasitical contruct we call democratic Govt? What is the solution to these Centuries of parasites living on/off societies backs??

Simple: Stop Paying Your Taxes and funding/sponsoring these fuking parasites

Zero Tax = Zero Govt

Thu, 12/08/2011 - 08:01 | 1957765 Moe Howard
Moe Howard's picture

An obvious conclusion does not a black swan make.

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