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NNT on his way to Saudi Arabia

boukra bimshe bi-bayrut (shwayy). N’shallah.

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Walking in Athens.

περπάτημα στην Αθήνα

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Another! HatTip to Dave

The Bed of Procrustes by Nassim Nicholas Taleb – Random House

I can’t tell when Nassim Nicholas Taleb, author of The Black Swan and Fooled by Randomness, is serious and when he’s winking wildly in his newest book, The Bed of Procrustes: Philosophical and Practical Aphorisms. My bemused and befuddled response to the book is either a testament to my insight or ignorance. I freely throw my hands up in the air and declare that I do not know which it is.

The Bed of Procrustes: Philosophical and Practical Aphorisms

Taleb is a modern philosopher mislabelled as a finance guru by the mainstream media. His insights into finance are well established in his earlier books, but any writer or reporter who narrowly defines Taleb in this fashion misses the point.

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HatTip to Dave Lull

Taleb has been criticized, but he tells it as he sees it, whether or not everyone agrees. He is taken seriously by everyone from the UK’s David Cameron to politician Ralph Nader. Not to mention NYU Polytechnic Institute, which granted him Distinguished Professor status. Yet he falls somewhere between academic and finance guy, his approach to both is philosophical.

In the end, Taleb said, risks can indeed still be taken but they must only be taken by those financial groups robust enough to withstand heavy losses from Black Swan-type events. And we must protect those who are not able to protect themselves. Society at large should not be paying for and saving too big to fail banks nor any financial groups that take risks for which they are not designed.

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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).