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Friday
Oct012010

Taleb Says He Wouldn't Shake Geithner's Hand, Calls Bernanke "A True Charlatan," Blames Nobel Prize For Rewarding Bad Economists

Black Swan Nassim Taleb

Reuters interview with Taleb from yesterday.

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Reprinted with permission

(Reuters) - Did the Nobel prize help trigger the worst financial crisis since the Great Depression?

Nassim Taleb, who shot to fame with his ideas about risk in the book "The Black Swan," believes the economics award and the theories it celebrates deserve their share of blame.

"I want to remove the harm from these economic models. And the Nobel is not helping. They should be held partly responsible, if not largely responsible, for the crisis," Taleb told Reuters by telephone.

The first of the Nobel awards will be announced next Monday, with the economics prize due a week later on Oct 11.

According to Taleb, there are a number of mistaken ideas about forecasting and measuring risk, which all contribute to events like the 2008 global crisis. The Nobel prize, he says, has given them a stamp of approval, allowing them to propagate.

Taleb is a former trader who took advantage of the mispricing of derivatives to make his fortune in the years before the crisis. He published "The Black Swan" in 2007 and went on to make millions more during the upheaval.

He rattles off a list of Nobel prize winners who make his blood boil. They include: Harry Markowitz, William Sharpe, Robert Merton, Myron Scholes, Robert Engle, Franco Modigliani and Merton Miller -- a virtual "Who's Who" of the economic world.

Merton and Scholes, for instance, were recognized for their work in valuing derivatives. Modigliani and Miller are known for a theory which some have argued promotes financing by debt.

Taleb attacks their works for how they are constructed and what they lead to. "There is no world in which these ideas can work mathematically," he said.

Forecasting methods, which he discusses in detail in his book, create a false sense of security or, worse, send people in the wrong direction. Universities then compound the problem by teaching these Nobel-approved ideas as orthodoxy.

His conversation is peppered with metaphors. "If I give you a map of Sparta when you're in Johannesburg, you will definitely have a problem," he says of the tools used in modern finance.

Taleb said he has met with the King of Sweden and suggested he do something about the economics prize, which was an addition in the 1960s to the roster of prizes awarded since 1901 for science, literature and peace.

"HE CRASHED THE PLANE"

But if he is unable to make headway in Stockholm, does Taleb believe his new influence can help him change the practices of important policy makers? He will be the first to say that his blunt, uncompromising manner make that highly unlikely.

He says he walked out of a meeting that included Treasury Secretary Timothy Geithner and other luminaries and wouldn't feel comfortable shaking their hands.

Federal Reserve Governor Ben Bernanke he calls "a true charlatan," arguing his idea of a "Great Moderation" made the world more dangerous because it masked underlying risks.

"He got us here. He crashed the plane," Taleb said. "I say it literally, he doesn't know what's going on."

In Europe, Taleb's ideas have found more favor. He spent time with British Prime Minister David Cameron and said the new leader's policies are visibly influenced by "The Black Swan."

Asked if he would accept a Nobel prize himself if selected, Taleb is uncharacteristically hesitant. People might think he had sold out, he worries. But he concludes: "If it would help society that I got something like that, I probably would."

For now, Taleb is content to write books and try to advance his ideas. He says he has given up trading, but has a clear purpose for all the profits he made.

  • "I'm using the money now to finance the destruction of the economic establishment."

 

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All of these are classics:

 

 

Recently from Taleb:

 

 

 

 

 

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Reader Comments (18)

The Knightian dog ate my recovery

http://blogs.reuters.com/great-debate/2010/08/31/the-knightian-dog-ate-my-recovery/

Funny comments from taleb...from aug. 31...
Oct 1, 2010 at 6:17 PM | Registered CommenterDailyBail
The incident in which a concrete mixer bearing the words 'Anglo Toxic Bank' was crashed into the gates of Leinster House was quickly dubbed 'Cementgate' on the social networking site Twitter. Contributors unleashed a rapid-fire barrage of 'cementgate' jokes and posted pictures from the scene.

http://www.irishtimes.com/newspaper/breaking/2010/0929/breaking19.html

check out the picture
Oct 1, 2010 at 6:24 PM | Registered CommenterDailyBail
The Future of Predicting the Future
Predicting future behavior, in fact, is something of a growth industry.

A Cambridge, Mass., company called Recorded Future, which is funded by both Google and the CIA, claims to use its "temporal analytics engine" to predict future events and activities by companies and individual people.

http://itmanagement.earthweb.com/features/article.php/12297_3905931_1/Pre-crime-Comes-to-the-HR-Dept.htm

Pre-crime...
Oct 1, 2010 at 6:25 PM | Registered CommenterDailyBail
Oct 1, 2010 at 6:25 PM | Registered CommenterDailyBail
Satyam today issued its first results since becoming engulfed in an accounting scandal early last year that almost broke the Indian services firm.

The scandal erupted when B Ramalinga Raju resigned in January 2009, after writing an extraordinary letter to directors admitting inflating profits at the firm by almost a billion pounds over a period of years. The wheels fell off when Satyam's directors refused to green light the takeover of a building firm run by members of Raju's family.

http://www.channelregister.co.uk/2010/09/29/satyam_numbers/
Oct 1, 2010 at 6:28 PM | Registered CommenterDailyBail
Democratic donors like George Soros, the bête noire of the right, and his fellow billionaire Peter B. Lewis, who each gave more than $20 million to Democratic-oriented groups in the 2004 election, appear to be holding back so far.

“Mr. Soros believes that he can be most effective by funding groups that promote progressive policy outcomes in areas such as health care, the environment and foreign policy,” said an adviser, Michael Vachon. “So he has opted to fund those activities.”

http://www.nytimes.com/2010/09/30/us/politics/30dems.html?_r=1&hp
Oct 1, 2010 at 6:29 PM | Registered CommenterDailyBail
Jake Tapper bends Rahm over for one last kiss...

http://blogs.abcnews.com/politicalpunch/2010/10/a-teary-emanuel-gets-dead-fish-at-white-house-send-off.html

Jake said with a tear in his eye, "that man's ass smells like a dead fish and I couldn't pull away'".
Oct 1, 2010 at 8:10 PM | Unregistered CommenterZ
Oct 1, 2010 at 8:41 PM | Unregistered CommenterZ
DB (and Dr. P)...When do you think the great U.S.A. will return to the moon? In a 100 years, 200 years? I guess it is sort of like the Tesla dealth ray or the Nazi flying saucer. Did you ever give me your answer to why we invented the technology to go to the moon and then couldn't even keep track of the footage? I hear that we are trying to use reverse technology to figure out what we did back then.
Oct 1, 2010 at 11:30 PM | Unregistered CommenterZ
Taleb is a weird dude. But I always pay close attention when he talks.
Oct 1, 2010 at 11:56 PM | Unregistered CommenterCheyenne
Roubini is strange as well...taleb is sort of like max keiser...he loves to exaggerate...which usually makes for compelling video and comments...

he's anti-war...

anti-debt...

anti-stimulus...

which as you know is exactly how i feel about everything...so i post him a lot...in fact here comes more taleb right now...
Oct 2, 2010 at 12:44 AM | Registered CommenterDailyBail
chey...and i also find it funny how much he looks like bernanke...and yet he loathes the guy...look at the top photo of the story again...it could almost be ben...
Oct 2, 2010 at 12:46 AM | Registered CommenterDailyBail
("DB (and Dr. P)...When do you think the great U.S.A. will return to the moon?")

Due to greed, corruption, gluttony, ignorance, social apathy, religious fanaticism along with many years of totally incompetent corrupt government...NEVER!
In the future the only Americans on the moon will be the ones working for the Chinese mining and manufacturing companies.
Oct 2, 2010 at 1:46 AM | Unregistered CommenterSagebrush
That is a great answer Sage.
Oct 2, 2010 at 12:56 PM | Unregistered CommenterZ
Add Krugman to the list of Keynesian flunkies with a misguided Nobel to match Obama's. The biggest mistake they all make is to take "consumption" (which should directly proportional to production in a healthy economy) and conclude that whatever means necessary to stimulate consumption is the magic pill to restore a declining output economy. The fallacy of economic inversion.

Artificially stimulated consumption under a massive credit contraction is dumber than a bag of rocks. It won't work, doesn't work and hasn't worked AT ALL. This is not a cyclical recession which needs a stimulus nudge. This is a 35 year Asian currecy / tech-stock /r eal estate / treasury multi-mega-bubble DEPRESSION, under the guise of a recession due to entitlement in place not available in the first one (of the post industrial era).

Start talking about a long term plan to reverse structural flaws in labor, trade, productivity, policy, finance, the central banking conspiracy, work ethic, currency manipulation, derivatives, HFT, finance capitalism (and a whole lot more) and then you can can throw away your Nobel quack awards and consider calling yourselves economists.
Oct 4, 2010 at 11:42 AM | Unregistered CommenterWil Martindale
that is beautiful wil...i am going to save it and post it later in a stimulus story...you'll get credit...
Oct 7, 2010 at 12:38 AM | Registered CommenterDailyBail

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