"Black Swan" author Nassim Taleb on the Debt Crisis, on Davos, on Regulation

Here is a video of "Black Swan" author Nassim Taleb on Bloomberg Television's "Surveillance Midday" with Tom Keene. Taleb said that he's worried about the crisis in the U.S. more than in Europe and that executive compensation on Wall Street is not fully addressed by regulators, causing a "moral hazard."



On the crises in Europe and the U.S.:

"I'm not worried about Europe. I'm worried about here more. Europe is a patient who has been diagnosed with cancer and starting chemotherapy. That is the worst moment. Over here we have had a much larger tumor and we have not been diagnosed. When you are pumping more and more painkillers [qe2s], you stay in the same place and there are harmful side effects. Here, we are not yet at a consciousness. The problem we had was not a recession. It was simply a problem of too much debt."

On Davos:

"The opposite of success is not failure. It is name dropping. People go to Davos for name dropping. The second problem is that have a framework. When I went there they thought here was a problem of recession. They cannot understand it was a problem of debt. I said to myself, these are not the people who will get us out of here. It is a waste of time. You're chasing successful people who want to be seen with other successful people. That's a game. So it's not productive, it was very depressing for me to go there to realize that these people have no clue. I do so much better staying at home with my fireplace and I have my notebook and I have my library."

On why the U.S. gets regulation so wrong:

"The problem is that regulation is like medicine. If I give you the wrong medicine, I will make you sick. If I give you the right medicine, I will improve your health. With Basel we had the wrong regulation and even today it did not tackle the central points that got us here. The captain does not go down with the ship. If you take collectively the executives of banks and S&P 500 and you'll realize over the past 10 years the stock market is down and these people are rich. They are collectively rich. So, you have a moral hazard, an asymmetry. They have the bonuses and we take losses as a society. That is not fully addressed by regulators."

On what we should be paying attention to that we aren't:

"My idea has been throughout to show that there is opacity and set the limits of what we do not know. The limits are fuzzy, but we definitely can construct decision making policies that don't expose us to this unknown. You avoid having a large corporation because it's much more fragile to the unknown. Some technological things make you vulnerable to the unknown. My idea is to identify what you need to be robust against and implement the policy general to society. Low debt because debt facializes you to uncertainty. It makes you rely on forecasting a lot more if you don't have debt."

The above transcript courtesy of Bloomberg's Amanda Cowie.
Thanks Amanda.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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