Thursday, October 23, 2008

Black Swan - Not worse than the Great Depression, but worse than the American Revolution

Not worse than the Great Depression, but possibly worse than the American Revolution



Justin_n_IL said...

I believe the people of the world are being put in a position of having no choice but to agree to the solution that will come in due time or face persecution as a trader and enemy combatant to the well being of the world. One that I will not partake in.

Patrick said...

Traders Double Down on Puts in Casino Firms

Casino stocks plunged to lows, and few traders appeared willing to bet on a near-term rebound.

Patrick said...

Kerkorian's Troubles: Beyond MGM and Ford

He used his MGM stake to make his big bet on Ford, but an ill-starred Vegas megaproject has him on his heels

Gerold said...

For what it's worth, I transcribed most of Taleb's conversation (only a bit of Mandelbrot's) to help overcome the strong accents - “I don’t know if we are entering the most difficult period… not (even) since the Great Depression, since the American Revolution.”

“The banking system, the way we have it, is a monstrous giant built on the feet of clay, and if that topples, we’re gone. Never in the history of the world have we faced so much complexity combined with so much incompetence in understanding these properties.”

“Let me tell you why it’s not like before. Looks what’s happening: the world is getting so fragile that a small shortage of oil can lead to a price going from $25 to $150… A small excess demand of an agricultural product can lead to an explosion in price. We live in a world that is way too complicated for our traditional economic structure; it’s not as resilient as it used to be. We don’t have slack; it’s over optimized.”

“Let me tell you what is happening in the ecology of the banking system. They’re swelling the large banks because it’s more optimal to have one large bank than ten small banks; it’s more efficient. And, that consolidation is putting us at risk because one large bank makes a mistake it’s ten time worse than a small bank making a mistake.”

Mandelbrot says, “Turbulence is common to physics and social science. Everything which involves turbulence is enormously more complicated, not just a little bit more complicated.’

(Economic turbulence) “is not well understood. In fact it is misunderstood, for which tools have been developed which assume that changes are only very small. If one of them comes, nothing bad happens; if several of them come together, very bad things happen and the theory does not take account of that. And the theory does not take account of very large and sudden changes in anything. The theory thinks that things move slowly, gradually and can be corrected as they change. In fact, they may change extremely brutally.”

Taleb says, “Now you understand why I am worried. I hope that I am wrong. I wake up every morning… actually, I don’t wake up every morning now, I start to wake up at night the past couple of weeks hoping that I’m wrong… begging to be wrong. I think that we may be experiencing something that is vastly worse than we think it is.”

Solmon says, “And, we think it’s pretty bad.” Taleb counters, “It’s worse.” All the books you read on globalization, they talk about efficiency, all that stuff… the network effect of globalization, ok, means that a shock in the system can have much larger consequences.”

“I am convinced that the package, recently, of $700 billion is pocket money because they don’t understand the ripple effect Hedge Funds have, ok, that the banks not lending to Hedge Funds would force hedge funds to liquidate positions … sell off positions. These positions sold off by Hedge Funds will impact other entities, driving down the price. (For instance) a supermarket, ok, needing funding would not be able to find a bank solvent enough to lend them money against inventory to make payroll. Ok, you may have chain reactions never imagined before. And, these come from the intricate relationships of a system we don’t understand.”

Eugene said...
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Cody said...
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I do not think economic conditions are as bad as the great depression.


A depression in the works.