Newsnight: Black Swan Author Tells It How It Is

[exiges]

Nassim Nicholas Taleb, author of "Black Swan" gives his verdict on the economic mess the G20 countries engineered, market sentiment, and how we can get out of the mess.

"socialising losses and privatising gains" pretty much sums up what is happening.

Edited August 21, 2011 by exiges

[wonderpup]

Well-ok- so the bankers did take down the world economy to enrich themselves but to be fair they didn't steal any bottled water or chewing gum like those kids who went to jail recently. So clearly our leadership need to be cracking down on those kids hard and fast- before things get out of hand.

Seeing our prime minister working feverishly on plans to evict people from their council homes, seeing his raw passion to clamp down on the poorest people in our society gives you real warm glow- as for the bankers- well, everyone deserves a second chance- right?

(Except kids stealing bottles of water or chewing gum obviously- they need to be made examples of.)

Cameron is right- we do have a sick society- he's just fails to recognise the degree to which he facilitates the spread of that sickness through his utter failure to deal with the feral scum at the top of it.

[Si1]

Cameron is right- we do have a sick society- he's just fails to recognise the degree to which he facilitates the spread of that sickness through his utter failure to deal with the feral scum at the top of it.

the time to deal with them was before Cameron came into power, but the Labour apologisers forget this

[South Lorne]

Well-ok- so the bankers did take down the world economy to enrich themselves but to be fair they didn't steal any bottled water or chewing gum like those kids who went to jail recently. So clearly our leadership need to be cracking down on those kids hard and fast- before things get out of hand.

Seeing our prime minister working feverishly on plans to evict people from their council homes, seeing his raw passion to clamp down on the poorest people in our society gives you real warm glow- as for the bankers- well, everyone deserves a second chance- right?

(Except kids stealing bottles of water or chewing gum obviously- they need to be made examples of.)

Cameron is right- we do have a sick society- he's just fails to recognise the degree to which he facilitates the spread of that sickness through his utter failure to deal with the feral scum at the top of it.

...not quite sure what you are trying to justify ....just nearly .....ask Brown why he decided the taxpayers were to pay for fallen bankers....he knew them well....you know that he knew them well....what ever Brown failed to do does not justify anything else ....

[The Eagle]

...not quite sure what you are trying to justify ....just nearly .....ask Brown why he decided the taxpayers were to pay for fallen bankers....he knew them well....you know that he knew them well....what ever Brown failed to do does not justify anything else ....

I don't think wonderpup was trying to justify the rioters' actions, he was simply pointing out the blatant hypocrisy of Cameron who demands harsh sentences for the rioters but at the same time is best mates with the banksters.

[Si1]

...Cameron ... is best mates with the banksters.

link?

[South Lorne]

I don't think wonderpup was trying to justify the rioters' actions, he was simply pointing out the blatant hypocrisy of Cameron who demands harsh sentences for the rioters but at the same time is best mates with the banksters.

...as I said unravelling Labours mess and lack of action against Bankers points to Brown and his Banker friends....in the meantime looters and arsonists are being dealt with by the law in a rightful manner...seems you and Wpup are not for this.....

[fallingbuzzard]

He said this on Newsnight 18 months ago. So what

Nassim Nicholas Taleb, author of "Black Swan" gives his verdict on the economic mess the G20 countries engineered, market sentiment, and how we can get out of the mess.

"socialising losses and privatising gains" pretty much sums up what is happening.

[bogbrush]

I'm no fan of the system at all, it's based on fraud, but I would like to see what people think a PM would do to not be categorised as a friend/lackey/placeman of the "banksters" that doesn't instantly crash the economy.

It seems to me that if any of us were actually in the hot seat and we sat with our advisors, telling us that yes it's a load of cr@p but that actually if we just crash the banking system we'll basically fold as a recognisable country overnight we might also try to find ways to keep our heads above water while trying to take the edge off the problem, and pray for time/something to turn up. Hell, we might even try to subtely get the message across that the easy times are done and we might have to get a bit more self-reliant.

This forum is pretty full of people who have absolute certainty over what is wrong and how corrupt people are so I just wanted to spin it round and get on a positive footing for once, and listen to viable solutions.

Edited August 22, 2011 by bogbrush

[Si1]

I'm no fan of the system at all, it's based on fraud, but I would like to see what people think a PM would do to not be categorised as a friend/lackey/placeman of the "banksters" that doesn't instantly crash the economy.

It seems to me that if any of us were actually in the hot seat and we sat with our advisors, telling us that yes it's a load of cr@p but that actually if we just crash the banking system we'll basically fold as a recognisable country overnight we might also try to find ways to keep our heads abover water while trying to take the edge of the problem, and pray for time/something to turn up.

This forum is pretty full of people who have absolute certainty over what is wrong and how corrupt people are so I just wanted to spin it right and get on a positive footing for once, and listen to viable solutions.

good post

[erranta]

I'm no fan of the system at all, it's based on fraud, but I would like to see what people think a PM would do to not be categorised as a friend/lackey/placeman of the "banksters" that doesn't instantly crash the economy.

It seems to me that if any of us were actually in the hot seat and we sat with our advisors, telling us that yes it's a load of cr@p but that actually if we just crash the banking system we'll basically fold as a recognisable country overnight we might also try to find ways to keep our heads above water while trying to take the edge off the problem, and pray for time/something to turn up. Hell, we might even try to subtely get the message across that the easy times are done and we might have to get a bit more self-reliant.

This forum is pretty full of people who have absolute certainty over what is wrong and how corrupt people are so I just wanted to spin it round and get on a positive footing for once, and listen to viable solutions.

Create a bank alternative - shove everyone who wants to participate cash in it

- then let the other bankers burn and demand they repay the public's cash before any more bonuses or shareholder dividends.

All banks are guilty cos in one way or another they all got free benefits from taxpayer Trillions keeping their bent industries afloat.

(And we still get carpers on here defending Thatcher closing down our heavy Industries cos they were going thru a bad patch the jobs/wealth all diverted to Germany/Sweden)

The Blitish taxpayer still underwrites the bastards cos Bent Politicians give taxpayer £75,000 per bank guarantees in case the fokkers go bust.

Why are bankers not charged a penny for this? Ans cos it supports the elites wealth and final cash grab from the population in 'general'

[tomandlu]

I'm no fan of the system at all, it's based on fraud, but I would like to see what people think a PM would do to not be categorised as a friend/lackey/placeman of the "banksters" that doesn't instantly crash the economy.

It seems to me that if any of us were actually in the hot seat and we sat with our advisors, telling us that yes it's a load of cr@p but that actually if we just crash the banking system we'll basically fold as a recognisable country overnight we might also try to find ways to keep our heads above water while trying to take the edge off the problem, and pray for time/something to turn up. Hell, we might even try to subtely get the message across that the easy times are done and we might have to get a bit more self-reliant.

This forum is pretty full of people who have absolute certainty over what is wrong and how corrupt people are so I just wanted to spin it round and get on a positive footing for once, and listen to viable solutions.

Not a bad post, but in some ways it falls into the same black/white trap you're accusing others of - namely that you seem to imply that the only alternative to crashing the banking system overnight is to pretty much do nothing.

I'd personally suggest the following:

• An immediate public policy acknowledgement that banking interests should not be allowed to dictate policy

• An immediate acknowledgement that the country is far to dependent on banking

• An immediate acknowledgement that banking is, unavoidably, a parasitic trade - useful in small amounts, perhaps, but not at the current scale

After that comes policy - both to ensure a distance between the politicians and the banks, and to bring about reform.

Edit to add:

I personally wouldn't describe banks as like a tumour - more of a parasite with some symbiotic properties. The role of banks should be fairly simple - to ensure and aid the flow of capital to valid and productive investment opportunities. Anything that moves it away from simplicity, and the resulting scale, is a bad thing. Proof? Look at CDS. On paper, it was a reasonable way to help insure against losses. In practice, once the mechanism became available, it just encouraged excessive risk.

Edited August 22, 2011 by tomandlu

[leicestersq]

I'm no fan of the system at all, it's based on fraud, but I would like to see what people think a PM would do to not be categorised as a friend/lackey/placeman of the "banksters" that doesn't instantly crash the economy.

It seems to me that if any of us were actually in the hot seat and we sat with our advisors, telling us that yes it's a load of cr@p but that actually if we just crash the banking system we'll basically fold as a recognisable country overnight we might also try to find ways to keep our heads above water while trying to take the edge off the problem, and pray for time/something to turn up. Hell, we might even try to subtely get the message across that the easy times are done and we might have to get a bit more self-reliant.

This forum is pretty full of people who have absolute certainty over what is wrong and how corrupt people are so I just wanted to spin it round and get on a positive footing for once, and listen to viable solutions.

Bogbrush,

great post. The only way I see out of your dilemma, is to recognise that banking is of itself not the problem. Indeed, banking has been one of the key developments that has allowed the world economy to grow to unprecedented heights. What it can do, is bring together those with resources but no ideas, with those who have ideas but no resources, and moves capital between them in exchange for a debt at interest. There is nothing wrong at all with this process, and it is noticeable that Muslim countries that banned such trades, failed to grow and expand whilst Europe and then the US leapt ahead using the banking system.

The problem with banking, is when you get insiders abusing the system for their own ends. With huge piles of money in the bank, any clever crook is going to be looking at how they can get their hands on that sort of money, and that is why you need regulation. Alas during the Brown years, regulation all but broke down, with crooks becoming CEO's, and whistleblowers finding that the policemen of the system were only interested in persecuting whistleblowers.

The answer of course is to first of all prosecute and seize the assets of the crooks. Then we have to acknowledge, as some other posters have stated, that we have too much banking, which ballooned up during the crook induced credit boom. As the banking system needs to return to its normal size, that means less banks and less jobs, and certainly lower salaries. That means when banks get into trouble, some need to be let go, whilst others need to be saved to preserve the system.

It will be interesting to see just how well our banks stand up to what looks like another credit crunch, and how well the state responds to pressure from the banks to bail them out. There is at least one bank not state controlled in the UK that appears to be in a bit of trouble, and if it were up to me, I would have to let it go if that trouble gets worse. It would be good if there were fewer banks in the UK.

[hedgefunded]

Whilst it's utterly contemptible that banks have behaved the way they've done, could someone tell me exactly which law they've broken (on a corporate or personal level).

[leicestersq]

Whilst it's utterly contemptible that banks have behaved the way they've done, could someone tell me exactly which law they've broken (on a corporate or personal level).

hedgefunded,

what HBOS seems to have done, allegedly, was run a corporate liar loan scheme. They knowingly made loans to people who they knew could not repay, instead relying on house price appreciation to make the loan good.

This is illegal, because there is fraud at the point where the loan is made. Normally the borrower gets prosecuted for this, but lets not kid ourselves here, these loans were the policy at this bank. It enabled them to get market share from other banks which they could not have got if they had checked the income of the borrowers.

Now if you lend to someone in this way, and do it legally (nothing to stop you from lending at ten times income if it is all declared), then you would have to mark the value of the loan on your books at a different value to one where you lent at 3 times income. The reason for this is obvious, the chances of getting your money back are far better at 3 times income, so that loan is worth more. HBOS were able to put these fraudulent loans on to their books at top valuations, because there was no regulation.

For a few years, this scam all appeared to work. The amount of credit going into the market helped lift house prices to crazy levels, ironically putting equity into the fraudulent loans, making them more valuable. However, in order for that to continue, you have to make more and more liar loans to push house prices up, so whilst some older loans get more valuable, you have to put more dubious loans onto your books at dodgy valuations. All of this looks good when you publish your results during the boom, and you can attract more cash to do more of this sort of work by offering higher rates on deposits, and similar with money market funds. Your actions as a rogue bank reduces the market share of honest banks, who in turn either have to contract and go under, or perhaps act in the same way, such is the consequences of regulators controlled by crooks.

Of course with any such fraud via balance sheet accounting, the music stops. There is a realisation in the market that people have been duped. They pull the money out of the banks, house prices stop rising, and people who have been lent money on the expectations that house prices will rise find that they cannot pay back. The fraud on the balance sheet is revealed, and the bank spirals to a zero. Depositors will lose their money if the state does not step in. The bankers meanwhile have taken their money out of the bank via the bonus. The bonus is the means by which the profits of fraud are conveyed to the criminals.

And the taxpayer gets to pay for pretty much all of the money that has been stolen. And in a desperate attempt to keep the housing market up, taxpayers fund SMI and put up with non-payers in situ, so as not to reduce the price of housing, so that the state can cover up the true economic cost of failed regulation.

[tomandlu]

Whilst it's utterly contemptible that banks have behaved the way they've done, could someone tell me exactly which law they've broken (on a corporate or personal level).

I'm not sure how relevant that is - the banks lobbied, and succeeded, in reducing regulation and reducing over-sight. Is it that surprising that you've not broken a law when you get to make them?

Where criminal fraud has taken place, by all means prosecute, but the problem and the solution to it goes way beyond that.

[@contradevian]

I think bogbrush is right. Getting rid of this cancer isn't straight forward and is going to be a lot harder than reforming the trade unions, not least because its an international problem. Governments in debt become very reliant on their banks, one answer is for them to reduce their debt (if they are allowed to).

[A.steve]

Whilst it's utterly contemptible that banks have behaved the way they've done, could someone tell me exactly which law they've broken (on a corporate or personal level).

It's a good question. Those who run our banks are extremely informed and connected - they go to great lengths to avoid being shown to be in breech of the letter of the law.

If I had to pick one law that has been broken, I'd say it was treason - on account of debasement of the currency. Examples of this would include hiding debt in off-balance-sheet vehicles like SIVs. I'd also suggest that there has been systemic breech of fiduciary duty to shareholders where excessive medium-term risk was accepted in exchange for short term accounted profit.

It's not easy to pin anything specific on banks or bankers - though it's pretty clear that, as a group, they've breeched the spirit (if not necessarily the letter) of the law.

[scrappycocco]

That blonde is like a broken labour party record, she must have property. Surely it's not sustainable to keep pumping liquidity into banks every few years to keep them afloat when all their doing is enriching themselves.

[mdman]

I'm no fan of the system at all, it's based on fraud, but I would like to see what people think a PM would do to not be categorised as a friend/lackey/placeman of the "banksters" that doesn't instantly crash the economy.

It seems to me that if any of us were actually in the hot seat and we sat with our advisors, telling us that yes it's a load of cr@p but that actually if we just crash the banking system we'll basically fold as a recognisable country overnight we might also try to find ways to keep our heads above water while trying to take the edge off the problem, and pray for time/something to turn up. Hell, we might even try to subtely get the message across that the easy times are done and we might have to get a bit more self-reliant.

This forum is pretty full of people who have absolute certainty over what is wrong and how corrupt people are so I just wanted to spin it round and get on a positive footing for once, and listen to viable solutions.

True value accounting ie not mark-to-model

Prosecution of fraud

Derivatives traded on open exchanges with overnight collateral posted as margin requirement

Separation of investment and retail banking

Unrepayable debts defaulted on with bondholders receiving haircuts

The banishment of ZIRP and QE

This will cause a collapse of the banking system (which is insolvent on a mark-to-market basis). It will also result in the imprisonment of most TBTF bank boards on charges of fraud, conspiracy and racketeering. So what the government prepares for in advance is:

Nationalisation of part or all of the banking system

Retail deposits made good, with printed money if necessary

ATM machines and clearing payments for solvent companies and individuals functions normally

Bank equity holders wiped out

Bank bondholders receive haircut as bank assets are gradually sold off

Massive contraction in the banking industry with job losses galore (like with coalminers in the 1980s - creative destruction)

Massive contraction in GDP associated with deflation

So long as bad debts are purged from the system and retail deposits are preserved, we will not enter a debt deflationary spiral. The situation will become akin to the American depression of 1921-23.

Edited August 22, 2011 by mdman

[Killer Bunny]

Yeah, he kept saying the banks are taking the michael but at no time did he say what we need to do - blowhard!

[exiges]

Yeah, he kept saying the banks are taking the michael but at no time did he say what we need to do - blowhard!

He did, he said we should have swapped debt for equity or something, rather than just giving them money/

[council dweller]

True value accounting ie not mark-to-model

Prosecution of fraud

Derivatives traded on open exchanges with overnight collateral posted as margin requirement

Separation of investment and retail banking

Unrepayable debts defaulted on with bondholders receiving haircuts

The banishment of ZIRP and QE

So what the government prepares for in advance is:

Nationalisation of part or all of the banking system

Retail deposits made good, with printed money if necessary

ATM machines and clearing payments for solvent companies and individuals functions normally

Bank equity holders wiped out

Bank bondholders receive haircut as bank assets are gradually sold off

Massive contraction in the banking industry with job losses galore (like with coalminers in the 1980s - creative destruction)

Massive contraction in GDP associated with deflation

Seriously, do you think there's part of a government department preparing for all this? (btw, I agree, this is what needs to be done)

....and coalminers = enermies of the Tories. Bankers = friends. Bankers are untouchable to them are they not?

[Timak]

Nationalisation of part or all of the banking system

I don't think you need to nationalise the whole system but certainly a "public option" would be good.

A simple national transactional bank to allow trade to continue.

A simple national savings bank that lends money to government backed and is the only bank to have a deposit guarantee.

Then open up banking to become a proper free market but with no tax payer guarantee and people being responsible for their own decisions about investment. Make it clear if you put your money into these scheme you are risking it.

[council dweller]

I don't think you need to nationalise the whole system but certainly a "public option" would be good.

A simple national transactional bank to allow trade to continue.

A simple national savings bank that lends money to government backed and is the only bank to have a deposit guarantee.

Then open up banking to become a proper free market but with no tax payer guarantee and people being responsible for their own decisions about investment. Make it clear if you put your money into these scheme you are risking it.

Yes we need something like 'the post office', something just to supply money for DD's etc. The govenment should be working on this now rather than waiting for a great big cluster fukc to happen.

This maybe 1939, we need to be prepared.