The Black Swan: Quotes & Warnings that the Imbeciles Chose to Ignore

Nassim Nicholas Taleb: The Black Swan: The Impact of the Highly Improbable (April 2007)

For the last 12 years, I have been telling anyone who would listen to me that we are taking huge risks and massive exposure to rare events. I isolated some areas in which people make bogus claims --epistemologically unsound. The Black Swan is a philosophy book (epistemology, philosophy of history & philosophy of science), but I used banks as a particularly worrisome case of epistemic arrogance --and the use of "science" to measure the risk of rare events, making society dependent on very spurious measurements. To me a banking crisis --worse than what we have ever seen -- was unavoidable and NOT A BLACK SWAN, just as a drunk and incompetent pilot would eventually crash the plane. And I kept receiving insults for 12 years!

Quotes From the Black Swan (written b. 2003-2006) that the IMBECILES did not want to hear

Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks – when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crises less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur ….I shiver at the thought.

Banks hire dull people and train them to be even more dull. If they look conservative, it's only because their loans go bust on rare, very rare occasions. But (...)bankers are not conservative at all. They are just phenomenally skilled at self-deception by burying the possibility of a large, devastating loss under the rug.

The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deemed these events "unlikely".

There is no way to gauge the effectiveness of their lending activity by observing it over a day, a week, a month, or . . . even a century!

(...) the real- estate collapse of the early 1990s in which the now defunct savings and loan industry required a taxpayer-funded bailout of more than half a trillion dollars. The Federal Reserve bank protected them at our expense: when "conservative" bankers make proﬁts, they get the beneﬁts; when they are hurt, we pay the costs.

Once again, recall the story of banks hiding explosive risks in their portfolios. It is not a good idea to trust corporations with matters such as rare events because the performance of these executives is not observable on a short-term basis, and they will game the system by showing good performance so they can get their yearly bonus. The Achilles’ heel of capitalism is that if you make corporations compete, it is sometimes the one that is most exposed to the negative Black Swan that will appear to be the most ﬁt for survival.

As if we did not have enough problems, banks are now more vulnerable to the Black Swan and the ludic fallacy than ever before with “scientists” among their staff taking care of exposures. The giant ﬁrm J. P. Morgan put the entire world at risk by introducing in the nineties RiskMetrics, a phony method aiming at managing people’s risks, causing the generalized use of the ludic fallacy, and bringing Dr. Johns into power in place of the skeptical Fat Tonys. (A related method called “Value-at-Risk,” which relies on the quantitative measurement of risk, has been spreading.)

Please, don’t drive a school bus blindfolded.

Owing to [...] misunderstanding of the causal chains between policy and actions, we can easily trigger Black Swans thanks to aggressive ignorance—like a child playing with a chemistry kit.

Warning hedge fund imbeciles about the next blowups: at 100 Women in Hedge Funds lecture, 2004, “Long-Term Capital Management is a picnic compared to what’s going to happen to you guys".

My war against "Value at Risk" started in 1996 in this interview.

Pablo Trianas’ comment

Phonies in Academia

EN FRANCAIS

Comme si nous n’avions pas assez de problèmes comme cela, les banques sont aujourd’hui plus que jamais sujettes au Cygne Noir et à l’erreur ludique, tandis que des « scientifiques » appartenant à leur personnel gèrent leur exposition éventuelle à ces phénomènes. dans les années 1990, le géant J. P. morgan mit le monde entier en danger en introduisant Riskmetrics, méthode de gestion des risques bidon, entraînant la généralisation de l’utilisation de l’erreur ludique et portant au pouvoir non pas de Gros tony adeptes du scepticisme, mais des dr. Johns (depuis, se répand une méthode liée à celle-là, baptisée la vaR [de l’anglais « value at Risk » – mot à mot : « valeur sous risque » – N.d.T.] – fondée sur la mesure quantitative du risque).

Quand je regarde les risques encourus par Fanny mae, une institution de prêts hypothécaires sponsorisée par le gouvernement, elle semble assise sur une poudrière, sujette au moindre soubresaut. mais il n’y a rien à craindre : les nombreux « scientifiques » qui en font partie ont jugé ces événements « improbables ».

LA MONDIALISATION: elle génère une fragilité qui se répercute en cascade tout en diminuant la volatilité et en créant une apparence de stabilité. En d’autres termes, la mondialisation produit des Cygnes Noirs foudroyants. Nous n’avons jamais vécu sous la menace d’un effondrement général. Jusqu’à présent, les institutions financières ont fusionné, donnant naissance à un nombre plus restreint de très grandes banques. maintenant, les banques sont pratiquement toutes liées entre elles. ainsi l’écologie financière est-elle en train d’enfler pour former des banques bureaucratiques gigantesques, incestueuses (souvent « gaussianisées » en termes d’évaluation des risques) – la chute de l’une entraîne celle de toutes les autres. La concentration accrue des banques semble avoir pour effet de rendre les crises financières moins probables, mais quand elles se produisent, c’est à une échelle plus globale et elles nous frappent très cruellement. Nous sommes passés d’une écologie diversifiée de petites banques, avec différentes politiques de prêt, à un ensemble plus homogène de sociétés qui se ressemblent toutes. Certes, nous enregistrons maintenant moins d’échecs, mais quand ils se produisent… Cette pensée me fait frémir. Je reformule mon idée : nous allons avoir moins de crises, mais elles seront plus graves. Plus un événement est rare, moins nous connaissons les chances qu’il a de se produire. autrement dit, nous en savons toujours moins sur les possibilités qu’une crise a de survenir.