Ten principles for a Black Swan-proof world By Nassim Nicholas Taleb

[girl gone mad]

These principles seem much too obvious, rational and reasonable to ever be the basis for our economic policy.

Ten principles for a Black Swan-proof world
By Nassim Nicholas Taleb http://www.ft.com/cms/s/5d5aa24e-23a4-11de-996a-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F5d5aa24e-23a4-11de-996a-00144feabdc0.html">Financial Times

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.


http://www.ft.com/cms/s/5d5aa24e-23a4-11de-996a-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F5d5aa24e-23a4-11de-996a-00144feabdc0.html">More...

Edited to fix links.

[willing dwarf]

1. That was a satisfying read

unfortunately it comes about 12 years too late...not that anyone would have stopped this spiral while it was winding up anyway.

Except for maybe #5, the rules he lays out are very straightforward commonsense. Still you've got to remember the trouble with commonsense is it's just so uncommon.

Is Black Swan his own term? Seems like another in a long series of unfortunate pairings of negative attributes to the color black. Wish people would stop that --since (dare I say) this crisis is mostly the product of white men.

[Mist]

2. The way Taleb uses the term "black swan" means "a hard to predict and rare event

beyond the realm of normal expectations."

http://en.wikipedia.org/wiki/Black_swan_theory

[willing dwarf]

7. Thanks, I figured it was a poetic image or something

Maybe I'd have termed them "Purple Cows" or "Red Herrings," but I suppose a bag of garbage by any other name would surely smell as sour.

[Lasher]

3. Registration required.

:(

[Mist]

5. A better way to access the article is to go to the main page of FT, then

click on the "Protect and Survive" article (w/the black swan!) on the upper left.

[Lasher]

8. I was able to go directly to the artcle

by using this link:

http://www.ft.com/cms/s/0/5d5aa24e-23a4-11de-996a-00144feabdc0.html?nclick_check=1

Thanks.

[girl gone mad]

6. If you change the "false" in the URL to "true"..

and take out &_i_referer and everything after that, you can access the article without registering.

[Lasher]

9. No joy.

And it looks like you can hit it from a different direction (like from the home page as advised upthread) but you can do that one time only. Then on the second try you get a prompt to register.

Will you please modify the URL as you have advised and paste it here? I tried that and all I get is a raspberry.

[IrateCitizen]

11. Registration for the FT is free

Just take the 90 seconds to sign up and you can access all of their content.

[Lasher]

12. Thank you.

I was aware of that but I'm one of those folks who just doesn't want to register if I can keep from it. But I appreciate the tip all the same.

Lasher

[Bigmack]

10. Thanks for this post

Your "directions" worked for this techi ignorant chile! Ms Bigmack

[Mist]

4. I like points 7, 8, and 9:

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

The entire system is the issue, not a few "glitches."