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HatTip to Dave Lull

Nassim Nicholas Taleb

Editor’s Note: On December 2, 2010, Mr. Taleb gave a talk at the Carnegie Council about his latest book, The Bed of Procrustes, and about the global financial crisis. He asked for the talk to be off the record. However, he kindly wrote this summary for us.

1. Hidden Risks and Agency Problems: The main cause behind the recent crisis
was the accumulation of hidden risks in the system, compounded by the agency problem.

The agency problem is when the manager (the agent) serves his own interest
at the expense of the person he is supposed to represent. This can be made obvious
with the following fact: collectively the managers of companies made hundred
of billions over the past decade while, in the aggregate, their investors and
retirees ended up poorer. The same with banks—and taxpayers are paying
for it. This brand of capitalism suffers from a fragilizing lack of symmetry
(managers of banks and corporations have the upside but not the downside, society
has the downside but not the upside).