Nassim Nicholas Taleb isn’t persuaded by the claims of central bankers that the recession is over, telling Canada’s Globe & Mail that “central bankers have no clue.” And despite what people say, our economic crisis was not a “black swan”–it was a perfectly predictable of the phenomenal buildup in leverage since 1980.
Here’s the initial exchange of the interview:
Margaret Wente: Happy days are here again. The central bankers say the recession is over. The markets are buoyant. Can we relax?
Nassim Taleb: Not at all. Central bankers have no clue. In the first place, the financial crisis was not a black swan. It was perfectly predictable. They ignored the phenomenal buildup in leverage since 1980. They acted like airline pilots who’d never heard of hurricanes.
After finishing The Black Swan, I realised there was a cancer. The cancer was a huge buildup of risk-taking based on the lack of understanding of reality. The second problem is the hidden risk with new financial products. And the third is the interdependence among financial institutions.
From there Taleb goes on to say:
- The massive bailouts haven’t made the economy any more stable. They’ve just transfered the debt from the private sector to the public sector. “The doctor has shown up and relieved the patient’s symptoms – and transformed the tumour into a metastatic tumour. We still have the same disease,” Taleb says.
- We shouldn’t have done the bailouts at all. Instead, we should have let the mutual mistakes of borrowers and lenders work themselves out in the market. “So swallow the losses, be dignified and move on. Suck it up,” he says.
- Ben Bernanke should be banned from Washington, DC.
- He would tell the Chinese to stop buying US debt as long as Larry Summers holds office. “He’s a textbook case of over confidence,” Taleb says, pointing to the risk accumulated in the investments made by the Harvard endowment.
The last exchange of the interview is probably the best:
My advice is that instead of investing in medium-risk securities, you should put most of your money in very low-risk securities, and a little bit in high-risk securities. Then you might get a good black swan. Also, it’s good to have more than one profession, in case your own profession goes out of style. A Wall Street trader who’s also a belly dancer will do a lot better than a trader who winds up driving a taxi.