Taleb: Government Deficits Could Be the Next 'Black Swan'
In a new edition of The Black Swan, author Nassim Nicholas Taleb warns against depending "on financial assets as a repository of value"
By Ben Steverman
Buisiness Week
The Black Swan: The Impact of the Highly Improbable is a philosophical treatise on uncertainty that managed both to entertain readers and to predict the financial meltdown of 2008. Nassim Nicholas Taleb—the book's author, who is also a trader and university professor—has reissued his 2007 best seller in a second edition that includes a new 73-page essay, "On Robustness and Fragility."
Businessweek.com interviewed Taleb in early July about his views on investing and the dangerous Black Swans—i.e. unpredictable events with big consequences—that could lie in wait for financial markets. Edited excerpts from the conversation follow:
Q: The new edition of The Black Swan includes what you call "10 principles for a Black-Swan robust society." One of them is: "Citizens should not depend on financial assets as a repository of value and should not rely on fallible 'expert' advice for their retirement." Can you explain what you mean?
Taleb: The problem is that citizens are being led to invest in securities they don't understand by people who themselves don't quite understand the risks involved. The stock market is probably the best thing in the world, but the true risks of the stock market are vastly greater than the representations. And this leads to extremely strange situations in which, say, someone has a bakery, is extremely paranoid about suppliers, very careful about risks, and protects his business with appropriate insurance. Then, at some point, he puts his $122,000 in savings in a fund that he knows nothing about, based on risk measures he knows nothing about, in companies very few people know much about.
(More here.)
By Ben Steverman
Buisiness Week
The Black Swan: The Impact of the Highly Improbable is a philosophical treatise on uncertainty that managed both to entertain readers and to predict the financial meltdown of 2008. Nassim Nicholas Taleb—the book's author, who is also a trader and university professor—has reissued his 2007 best seller in a second edition that includes a new 73-page essay, "On Robustness and Fragility."
Businessweek.com interviewed Taleb in early July about his views on investing and the dangerous Black Swans—i.e. unpredictable events with big consequences—that could lie in wait for financial markets. Edited excerpts from the conversation follow:
Q: The new edition of The Black Swan includes what you call "10 principles for a Black-Swan robust society." One of them is: "Citizens should not depend on financial assets as a repository of value and should not rely on fallible 'expert' advice for their retirement." Can you explain what you mean?
Taleb: The problem is that citizens are being led to invest in securities they don't understand by people who themselves don't quite understand the risks involved. The stock market is probably the best thing in the world, but the true risks of the stock market are vastly greater than the representations. And this leads to extremely strange situations in which, say, someone has a bakery, is extremely paranoid about suppliers, very careful about risks, and protects his business with appropriate insurance. Then, at some point, he puts his $122,000 in savings in a fund that he knows nothing about, based on risk measures he knows nothing about, in companies very few people know much about.
(More here.)
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