Mr. Taleb Goes To Washington

[petertribo]

Taleb is the first analyst I have read who considers the role Technology played in this Financial Disaster:

Over the past 20 years, the financial system has grown ever more complex. Building on a greater computing capacity and communication speed—"Bank runs now take place at the speed of BlackBerry"—Taleb recognizes that the financial system now possesses an efficiency that creates volatility. That cannot and will not go away.

We cannot have both debt leverage and a hyper-efficient system—the volatility is just too great. What Taleb explains—which no one else does—is that efficiency is already a form of leverage. A highly efficient system removes slack and magnifies small changes. Think of the efficient system as a high-performance aircraft. Each minute of steering input creates a rapid and violent shift of course, speed, or altitude. The system itself is souped up even before you add the debt. Once you do, the pilot is equally jacked up and twitchy, creating an explosive combination. Now imagine that fighter jet trying to fly in a 1,000-plane formation, and you get an idea of the world financial system in the 21st century.

We can't erase the technology that created the planes, so we'll have to make sure we fly sober, maybe even with an onboard computer that dampens the controls. That means getting rid of the debt. It's that simple.

http://www.thebigmoney.com/articles/...ngton?page=0,0
Original link at:
http://www.nakedcapitalism.com/2009/03/links-32909.html

The complexity of modern society is growing beyond the power of humans to manage it.

[jk]

Re: Mr. Taleb Goes To Washington

james tobin suggested a very small transactions tax, perhaps 0.25% of capital, as a way to deliberately throw some sand in the machinery to slow it down. investors wouldn't really be affected at all, traders otoh....

[medved]

Re: Mr. Taleb Goes To Washington

Taleb is the first analyst I have read who considers the role Technology played in this Financial Disaster:

http://www.thebigmoney.com/articles/...ngton?page=0,0
Original link at:
http://www.nakedcapitalism.com/2009/03/links-32909.html

The complexity of modern society is growing beyond the power of humans to manage it.

We can't erase the technology that created the planes, so we'll have to make sure we fly sober, maybe even with an onboard computer that dampens the controls. That means getting rid of the debt. It's that simple.

You cannot get rid of debt until you eliminate the debt that underlines creation of our "money". Which means, eliminating debt is only possible by going back to the gold standard.

[World Traveler]

Re: Mr. Taleb Goes To Washington

I've always wondered, why are the transactions that involve the buying and selling of financial products not taxed?? My opinion: it's due to the power of the financial industry in Washington.

If I buy an item at Walmart (i.e. conduct a transaction that involves the exchange of money for a product), there's a sales tax. If I have a job (i.e. a transaction that involves selling my labor for money), there's an income tax. If I die and leave an estate that's big enough (i.e. a transaction that involves transferring ownership to my heirs), there's an estate tax. Etc., etc.

[ThePythonicCow]

Re: Mr. Taleb Goes To Washington

The complexity of modern society is growing beyond the power of humans to manage it.

That's part of what the Banksters are betting on. If they can encourage the creation of complexity that can destroy most of us, our wealth if not our lives, and if they have more tools, resources, organizations, and powers to deal with that complexity than others, they will prevail and prosper, in the secular terms that are all they understand.

[Rajiv]

Re: Mr. Taleb Goes To Washington

My solution is to introduce uncertainty into the trading picture.

I propose that any trade will get consumated at a price that is a weighted average of all trades that took place 30 min before and 30 minutes after your trade took place, with your trading time as the midpoint. Your "nominal" trade price will be factored in the weighted average of all "nominal" trade prices over that time interval.

The above methodology will bring down the intraday trading volatility, and the trading volume, without losing the information contained in the trades.

Also, mark to market values should be to a weighted average of all trade during the day, and not just the closing price for the day.

[petertribo]

Re: Mr. Taleb Goes To Washington

If they can encourage the creation of complexity that can destroy most of us, our wealth if not our lives, and if they have more tools, resources, organizations, and powers to deal with that complexity than others, they will prevail and prosper, in the secular terms that are all they understand.

For "they" above I would substitute Specialists. I agree on the Banksters but I think most if not all of the Specialists exhibit the same characteristics you cite. The more complex their speciality, the more we all have to pay and be held hostage to them to one degree or another. To boot, at the end of the day, we may not even get the product the Specialty is supposed to deliver. Bankruptcy instead of Prosperity. True though that the Banksters are the most powerful since they control the till.

Here's three simple anecdotes on Complexity:

I had a health problem which treated by a conventionally trained doctor did not improve fro two years. He only treated the symptoms. I did some research myself and found alternative treatment through herbal/vitamin supplements (the Government wants to crack down on these). Using this alternative treatment, the health problem is almost all gone.

In another case, I had a specialist in for a domestic installation. That specialist quoted me $2000. Again I did some research and did the job myself for $600. The specialist? A plumber. The installation? An on demand hot water heater.

Lastly, I recently needed new glasses. Round here most Optometrists also operate as opticians, the two functions are integrated in the same offices. The Optometrist pressured me to buy there which I refused to do. I had to ask to be given my prescription. I was quoted $400 for one pair of glasses installed in my old frames. I went online and ordered two pairs for $120 from Hong Kong. Excellent glasses, no problems.

(In all the above cases, I think the Specialists would be carrying a lot of debt which they then need to extract from the client.)

So, there are alternatives to the Complexity Game. There is the possibility that ordinary folks just cannot afford all this Complexity any more and will seek Simple Alternatives. (Like putting their money in a mattress.)

A pretty Complex subject deserving more analysis.

[Master Shake]

Re: Mr. Taleb Goes To Washington

I've always wondered, why are the transactions that involve the buying and selling of financial products not taxed?? My opinion: it's due to the power of the financial industry in Washington.

If I buy an item at Walmart (i.e. conduct a transaction that involves the exchange of money for a product), there's a sales tax. If I have a job (i.e. a transaction that involves selling my labor for money), there's an income tax. If I die and leave an estate that's big enough (i.e. a transaction that involves transferring ownership to my heirs), there's an estate tax. Etc., etc.

Cue The Beatles "Taxman."

I think the problem is more on the government spending side than the revenue side.

[ThePythonicCow]

Re: Mr. Taleb Goes To Washington

For "they" above I would substitute Specialists. ...

Here's three simple anecdotes on Complexity: ... doctor ... plumber ... optometrist ...

I too treat my health issues with self selected nutritional and potion remedies, with far better results than a doctor would have provided. I too wear glasses purchased online and made in China or Hong Kong. On the other hand, I still hire plumbers for new equipment installation, and I still hire, as apparently you did, optometrists for eye exams.

I have no issue with hiring specialists when their experience and equipment enables them to perform the job better or at less cost (in total of my time and dollars) than I could.

I avoid hiring specialists (such as doctors for most chronic illnesses) when their expertise is actually applied in extracting a far greater cost from me for a far inferior result than what I can obtain myself. But at least I (still) have that option with my health.

I reserve a special circle in Hell for those specialists who are destroying our wealth and taking our liberty, and who have corrupted our government, schools, universities, foundations, major corporations, press and public discourse beyond all recognition.

[nedtheguy]

Re: Mr. Taleb Goes To Washington

redacted

[ThePythonicCow]

Re: Mr. Taleb Goes To Washington

I ordered eyeglasses from this site: http://zennioptical.com/cart/home.php

I got a pair from there (Zenni Optical), and then a couple more pair from http://www.39dollarglasses.com/, which I now prefer, for reasons that I've now forgotten .