Saturday, December 03, 2011

Black Swan of Cairo needs a Leash

If you read that Nassim Taleb & Nicholas Blyth Black Swan of Cairo article, the infuriating thing to me about Taleb is that he insists on making a sweeping (and wrong) generalization when he actually has a very insightful (but not so general) point to make.

He's right that some of the attempts to stabilize things -- in particular Greenspan keeping rates super low to keep the housing market going as it was starting to weaken -- actually not only made things worse, but set up a catastrophe. But he paints everything with the same brush.

He would wipe out the FDIC in particular if you really believe what he says. The FDIC smooths out dangerous events so people aren't afraid enough of impending doom, he might say. Actually he would wipe out all insurance, it sounds like.
Yet, he's right that suppression often leads to explosion. It just seems like he has to distinguish between suppressing risk and distributing risk.

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