On anniversary of Lehman collapse, author of The Black Swan can say 'I told you so'
Margaret Wente
Globe and Mail Update Last updated on Wednesday, Sep. 16, 2009 11:28AM EDT
On the anniversary of the spectacular collapse of Lehman Brothers, Nassim Nicholas Taleb is one of those people who can say, “I told you so.” For the past decade, he's been warning that the global economy has become far more vulnerable to unpredictable events that can cause vast disruption. He famously foresaw the credit crunch that brought the financial
Mr. Taleb is a Wall Street derivatives trader who became an academic specializing in the study of randomness and probability. In May of 2008 he published The Black Swan: The Impact of the Highly Improbable. It argued that most economists and bankers live in a dangerous fantasy world in which they imagine they can control the future. The book takes its name from the fact that all swans were once believed to be white – until black swans turned up in Australia. He loathes bankers, central bankers, and economists, not necessarily in that order, and thinks that banks should be run like public utilities. “My major hobby is teasing people who take themselves and the quality of their knowledge too seriously,” he says. He has advised British Conservative Leader David Cameron, and last week testified before the U.S. Congress on the financial
Mr. Taleb will speak Tuesday in Toronto to kick off the new season of the Grano lecture series. The theme of this season's series is risk and the next global crisis. Margaret Wente caught up with him on Friday to ask him what (if anything) we've learned.
Margaret Wente: Happy days are here again. The central bankers say the recession is over. The markets are buoyant. Can we relax?
Nassim Taleb: Not at all. Central bankers have no clue. In the first place, the financial crisis was not a black swan. It was perfectly predictable. They ignored the phenomenal buildup in leverage since 1980. They acted like airline pilots who'd never heard of hurricanes.
After finishing The Black Swan, I realized there was a cancer. The cancer was a huge buildup of risk-taking based on the lack of understanding of reality. The second problem is the hidden risk with new financial products. And the third is the interdependence among financial institutions.
MW: But aren't those the very problems we're supposed to be fixing?
MT: They're all still here. Today we still have the same amount of debt, but it belongs to governments. Normally debt would get destroyed and turn to air. Debt is a mistake between lender and borrower, and both should suffer. But the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren. What is the effect? The doctor has shown up and relieved the patient's symptoms – and transformed the tumour into a metastatic tumour. We still have the same disease. We still have too much debt, too many big banks, too much state sponsorship of risk-taking. And now we have six million more Americans who are unemployed – a lot more than that if you count hidden unemployment.
MW: Are you saying the U.S. shouldn't have done all those bailouts? What was the alternative?
NT: Blood , sweat and tears. A lot of the growth of the past few years was fake growth from debt. So swallow the losses, be dignified and move on. Suck it up. I gather you're not too impressed with the folks in Washington who are handling this crisis.