Author Topic: Nassim Taleb "Black Swan" author: "Obama Stimulus Made Economic Crisis Worse"  (Read 762 times)

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Obama Stimulus Made Economic Crisis Worse, `Black Swan' Author Taleb Says
By Frederic Tomesco - Sep 25, 2010 10:36 AM ET
www.bloomberg.com


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U.S. President Barack Obama and his administration weakened the country’s economy by seeking to foster growth instead of paying down the federal debt, said Nassim Nicholas Taleb, author of “The Black Swan.”

“Obama did exactly the opposite of what should have been done,” Taleb said yesterday in Montreal in a speech as part of Canada’s Salon Speakers series. “He surrounded himself with people who exacerbated the problem. You have a person who has cancer and instead of removing the cancer, you give him tranquilizers. When you give tranquilizers to a cancer patient, they feel better but the cancer gets worse.”

Today, Taleb said, “total debt is higher than it was in 2008 and unemployment is worse.”

Obama this month proposed a package of $180 billion in business tax breaks and infrastructure outlays to boost spending and job growth. That would come on top of the $814 billion stimulus measure enacted last year. The U.S. government’s total outstanding debt is about $13.5 trillion, according to U.S. Treasury Department figures.

Obama, 49, inherited what the National Bureau of Economic Research said this week was the deepest U.S. recession since the Great Depression. Even after the stimulus measure and other government actions, the U.S. unemployment rate is 9.6 percent.

Governments globally need to cut debt and avoid bailing out struggling companies because that’s the only way they can shield their economies from the negative consequences of erroneous budget forecasts, Taleb said.

Errant Forecasts

“Today there is a dependency on people who have never been able to forecast anything,” Taleb said. “What kind of system is insulated from forecasting errors? A system where debts are low and companies are allowed to die young when they are fragile. Companies always end up dying one day anyway.”

Taleb, a native of Lebanon who gave his speech in French to an audience of Quebec business people, said Canada’s fiscal situation makes the country a safer investment than its southern neighbor.

Canada has the lowest ratio of net debt to gross domestic product among the Group of Seven industrialized countries and will keep that distinction until at least 2014, the country’s finance department said in March. Canada’s ratio, 24 percent in 2007, will rise to about 30 percent by 2014. The U.S. ratio, now above 40 percent, will top 80 percent in four years, the department said, citing IMF data.

“I am bullish on Canada,” he told the audience. “I prefer Canada to the U.S. or even Europe.”

Mortgage Interest

Canada’s economy also benefits from the fact that homeowners, unlike their U.S. neighbors, can’t take mortgage interest as a tax deduction, Taleb said. That removes the incentive to take on too much debt, he said.

“The first thing to do if you want to solve the mortgage problem in the U.S. is to stop making these interest payments deductible,” he said. “Has someone dared to talk about this in Washington? No, because the U.S. homebuilders’ lobby is hyperactive and doesn’t want people to talk about this.”

Taleb also criticized banks and securities firms, saying they don’t adequately warn clients of the risks they run when they invest their retirement savings in the stock market.

‘Have Fun’

“People should use financial markets to have fun, but not as a depository of value,” Taleb said. “Investors have been deceived. People were told that markets go up regularly, but if you look at the last 10 years that’s not been the case. The risks are always greater than what people are told.”

Asked by an audience member if returns such as those posted by Berkshire Hathaway Inc. Chief Executive Officer Warren Buffett -- who amassed the world’s third-biggest personal fortune through decades of stock picks and takeovers -- are the product of luck or talent, Taleb said both played a part.

If given a choice between investing with Buffett and billionaire investor George Soros, Taleb also said he would probably pick the latter.

“I am not saying Buffett isn’t as good as Soros,” he said. “I am saying that the probability Soros’s returns come from randomness is much smaller because he did almost everything: he bought currencies, he sold currencies, he did arbitrages. He made a lot more decisions. Buffett followed a strategy to buy companies that had a certain earnings profile, and it worked for him. There is a lot more luck involved in this strategy.”

Soros gained fame in the 1990s when he reportedly made $1 billion correctly betting against the British pound.

Taleb’s 2007 best-seller, “The Black Swan: The Impact of the Highly Improbable,” argues that history is littered with rare, high-impact events. The black-swan theory stems from the ancient misconception that all swans were white.

A former trader, Taleb teaches risk engineering at New York University and advises Universa Investments LP, a Santa Monica, California-based fund that bets on extreme market moves.

To contact the reporter for this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net.

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net


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It would have been helpful if Taleb could have said what he would have done to lower unemployment

btw - if you want to see the US Real Estate market really crash then just do away with the mortgage interest deduction as Taleb has suggested

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It would have been helpful if Taleb could have said what he would have done to lower unemployment

btw - if you want to see the US Real Estate market really crash then just do away with the mortgage interest deduction as Taleb has suggested

Let the too big to fail go, no idiotic stim bills that only delay the inevitable, etc etc. 

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Nassim Taleb Ridicules Geithner And Krugman For Failing To See The Crisis
Joe Weisenthal | Sep. 30, 2010, 8:02 PM | 546 |  6



At the same event, Nassim Taleb told people not to listen to Geithner.

The Atlantic:

Taleb explained his simple metric for judging whose economic opinions are worth his time: "Did someone predict the crisis before it happened? ... If the answer is no, I don't want to hear what the person says. If the person saw the crisis coming, then I want to hear what they have to say."

Other unlucky economic figures who failed Taleb's test included writers Paul Krugman and Thomas Friedman.

Who knew Nassim put so much stock in the ability of people to predict one event correctly?

Tags: Tim Geithner, Nassim Taleb | Get Alerts for these topics »

Read more: http://www.businessinsider.com/nassim-taleb-ridicules-geithner-and-krugman-for-failing-to-see-the-crisis-2010-9#ixzz114BI9cyr

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Federal Reserve 'Will Be Gone' In 25 Years, Top Financial Mind Predicts, Despite Geithner's Vote Of Confidence
 
First Posted: 09-30-10 07:35 PM   |   Updated: 09-30-10 08:49 PM


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Read More: Bailout, Black Swan, Economic Stimulus Package, Financial Crisis, Great Recession, Nassim Nicholas Taleb, Nassim Taleb, Tarp, Timothy Geithner, Business News

 A mere half-hour after Treasury Secretary Timothy Geithner praised the "necessary" and "very substantial" actions of the Bush and Obama administrations to "break the back of the financial crisis," one of the world's leading financial minds said Thursday that the United States is in the same economic predicament today as it was in 2007, predicting that within 25 years the Federal Reserve "will be gone."

Nassim Nicholas Taleb, renowned derivatives trader, university professor and author of "The Black Swan," warned a gathering in Washington of the growing risk the nation has taken on as a result of poor decisions by the Fed and policymakers, including trillions of dollars in taxpayer money funneled into bailouts of private industry.

"This transformation from private debt ... to public debt" is "bad" from a risk standpoint and "immoral" from an ethical standpoint, Taleb -- a member of the Derivatives Hall of Fame whose book became a bestseller -- told a crowd at the Washington Ideas Forum, an event held by The Atlantic and The Aspen Institute. Deficits "will break the Fed" and it will be replaced, he predicted.

"The Romans had a saying," Taleb added: "The grandchildren should not bear the debt of the grandparents."

That debt is made more dangerous, Taleb said, by the increasingly complexities of the financial system, a problem that he said has not been ameliorated during the last three years. "Debt and complexity are not friends," he said, because "complexity causes unpredictability," and heavy debt burdens mean one false move, whether by an individual actor or a system, could spell disaster.

Nobel Prize-winning economist Paul Krugman, a popular columnist for The New York Times, "doesn't understand" the economic situation the U.S. finds itself in, Taleb claimed, nor do most economists.

Because of the significant rise in debt, within 25 years "anything fragile will break," Taleb said. That includes the Fed, he argued, because the Fed "fragilized this country."

"The Fed is what got us here," he said, because of its inattention to risks in the financial system. "It's like someone flying a plane without understanding how to fly."

Geithner appeared before the same crowd shortly before Taleb. His assessment of the economy and actions taken in response was essentially the exact opposite.

The Treasury Secretary, who as the head of the Federal Reserve Bank of New York played a key role in the immediate response to 2008's financial meltdown, told the crowd that without the "very substantial" financial force brought to bear "early and quickly" to fight the crisis, "nothing else would be possible."

"It's worth just stepping back and recognizing that this country did do the necessary thing ... in acting earlier to break the back of the financial crisis," Geithner said in reference to controversial actions such as the Troubled Asset Relief Program and the stimulus bill.

Referring to the $800 billion stimulus as "exceptionally large" and TARP as "overwhelming financial force," Geithner said the two policy decisions are the two most important judgments made by the outgoing Bush administration and incoming Obama administration.

Though private-sector economists generally conclude that the stimulus was a success, the unemployment rate has jumped from 8.2 percent to 9.6 percent since it was enacted into law on Feb. 17, 2009, Labor Department figures show. Economists argue that unemployment would have been much higher without the stimulus, though they acknowledge it would likely be lower if the stimulus had been larger.

As for TARP, it helped the banking sector recover by instilling confidence in market participants -- in part because the world now knew that the U.S. government was prepared to rescue large, systemically-important institutions by virtually any means necessary. The Fed's multi-trillion dollar commitment to the financial sector and its near-zero interest rate policy likely helped, too.




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Shahien Nasiripour is the business reporter for the Huffington Post. You can send him an e-mail; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.


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