Saturday, October 11, 2008

Nassim on Newsnight

With fabulous incompetence, Newsnight failed to understand the mind of the most important thinker on the current crisis, my pal Nassim Nicolas Taleb. He was in the studio, to his left a female economist and, on the big screen, 'an economist in a tie' (Nassim's words) in Washington. The economists were so implausible, so full of themselves and so smarmy that I feared for my lunch on Monday. Nassim was quivering with anger and, at one point, clutching his chest. He's my lunch. John Gray will be there to - it's the crunch lunch. Anyway, the implausible economists poured empty words over everything while angry Nas tried to explain that it was all meaningless because the most important first step was to ditch all the nonsensical models of risk dreamed up by the quack econs and statisticians employed by banks. This is the point. Salvation - and, come to that, happiness - lies not in bailouts but in a humble acceptance of how little we know and how vain are our self-important attempts to pretend otherwise. This was Nassim's message. It went unheard. On the floor of the bourse the brokers roared on like beasts.

23 comments:

  1. John Gray will be there to what?

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  2. Newsnight, on air as it is at the dog end of the day, is staffed mainly with the dog end of people, talking of dogs, K.Wark, as we all know, is one of the linchpins of the programme, her correct place in society should be behind bars.
    Anyone notice how little the current FiCri has affected Germany, Norway, Holland, Luxembourg, Belgium, Italy and Austria ?
    As Frau.... at the Bank..... in Luxembourg said to me yesterday "the British are so stupid, they buy houses like we buy shoes".
    People over there tend to be in their forties before they buy a house, on a long, low interest mortgage.

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  3. Yes, the two economists were smirking over your friend and busy talking to each other across him. And at one point he was reproved by lovely Emily for an answer that wasn't "political" enough, she said.

    It just goes to show how seasoned studio discussion folks can pull the wool. Amid all the razzle, it's easy to overlook what they are actually saying and how completely they control what can be said at all.

    FWIW, I dont think Nassim Nicholas Taleb's message went unheard at all. It's been heard loud and clear by those who are able to hear it. The problem is that those who need to hear it have no intention of listening, now or in the future.

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  4. Nassim was quivering with anger and, at one point, clutching his chest.

    Clearly, Bryan’s conception of the Messiah is not Christ crucified, but Christ having a coronary...

    ...and, Malty, mein Herr, in Germany, Norway, Holland, and Luxembourg, etc. barely 7% of the population use a credit card, whereas in the UK it will be in excess of 70%. It’s all a case of deja vue! The 1929 crash, too, followed a long, debt-fuelled boom for the American economy!

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  5. Sorry Bryan, Mr Gray lost it in Black Mass, idealism is not fundamentalism.

    Taleb is a genius and as such wont be properly understood until he is dead, I urge you to do your uncertain duty.

    Its not a case of people not understanding Taleb they just don't want too, its very uncomfortable for us inductively thinking humans.

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  6. The important thing about N N Taleb is that he starts from a diametrically opposite viewpoint from received opinion: he thinks for himself, tries to see things as they really are and approaches it all humbly, reverentially even.
    These are unfashionable but, until recently, widely acknowledged virtues.
    Newsnight missed a great opportunity last night: instead of setting him against two deeply conventional, smug muppets of the type he rightly despises, they should have devoted at least half an hour to an interview by someone who was genuinely interested in finding out what he was trying to say. We already know what the muppets have to say - it's splattered daily all over the press.
    Instead, to their shame, they diminished him by making him angry, something which tends to make the English suspicious. If that was the only interview you'd ever seen of him it might not encourage you to get to know any more about him.

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  7. any chance of a podcast interview?

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  8. The cause of the financial crash was not a paucity of knowledge, but a paucity of wisdom.

    Not only was this crash predictable, but it was predicted by numerous individuals. In 2003, Warren Buffet warned that the trade in derivatives posed a "mega-catastrophic risk" which could cause a "spiral that can lead to a corporate meltdown." And as far ago as 1998, a popular article on the mathematics of finance in Scientific American noted that:

    Investment banker Felix Rohatyn
    has been quoted as warning about the perils of twentysomething computer whizzes concocting “financial hydrogen bombs.” Some businesses and local governments have excluded derivatives from their portfolios altogether; fears have even emerged about a meltdown of the financial system...

    Like other modeling techniques, value at risk has bred skepticism about how well it predicts ups and downs in the real world. The most widely used measurement techniques rely heavily on historical market data that fail to capture the magnitude of rare but extreme events.


    The problem is that wishful thinking, borne of greed, led people to ignore these predictions, and to believe that their financial models were universally valid, rather than valid under certain specified circumstances.

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  9. But Gordon, everything is always predicted by somebody somewhere.

    The point is that this was a surprise.

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  10. Why were you watching Newsnight anyway? It's crrrrrap, as Tony the Tiger would say.

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  11. Chiming in from US, I first wanted to point out a significant statement:

    Salvation - and, come to that, happiness - lies not in bailouts but in a humble acceptance of how little we know and how vain are our self-important attempts to pretend otherwise. This was Nassim's message. It went unheard.

    This is how I have always interpreted my father's telling me that whenever anyone opens his shirt, there is no big "S" underneath.

    Then I was reading the responses, and they made me think of what was happening here in the USA, that people knew and were trying to act on the problem that led to this "FiCri". And I recalled a video I had just seen last night. Now, the video was made by Republicans, and may be overly biased, which is okay for the purposes of my point that people knew what was going on and that bad things could happen. And for the sake of the other side, I would think there were some Democrats who thought that something ought to be done. The other thing that makes me hesitate to post the video, but then again preface it first, is that all the Democrats, except for Barney Frank, are black. I don't like that there may be a purposeful attempt at associating skin color to the issue without saying something about it, and hoping for an assumption that Obama would be the same way. (And although he may have been equally supportive one way or the other, he was an apparently silent, yet somewhat interested, onlooker.) Possibly so, but say so, without being subliminal. So I will say something about it, that one reason there were at the time some black voices against regulating the bad mortgage situation, is that the National Black Caucus would have been politically supportive of organizations helping so many of the people they represent. Thus they would be vocal as well, and quite possibly, albeit ignorantly, acting for what they believed to be right.

    Shocking Video Unearthed Democrats in their own words Covering up the Fannie Mae, Freddie Mac Scam that caused our Economic Crisis

    Significant is that Barney Frank is showing himself to be a terrible overseer. As we now begin digging seriously into finding out who paid what lobbyists to do what, and who were either incompetent or purposely negligent in their positions, Frank will have to be one of the very first ones to go--even though he was there this past week to spout off as he was overseeing the bail out.

    On the other hand, there were voices of warning out there. And these people who represented us so well, and took so much heat from their opponents--we need to know who they were. It seems Obama was not one, that he was for whatever his reasons, silent. But McCain may have been one of the active opposition to the business practice of supporting so many bad loans.

    The point is that some really did know, and really tried "to create a new regulatory structure." That is what is evident in the video.

    Yours,
    Rus

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  12. I watched Taleb on Newsnight and was unsettled by his shaking anger, though everything he said made sense. The others did their best to ignore him. We should have more Taleb's on TV - there are many subjects that affect us all and are glossed over by the mainstream media while they devote inordinate time to some numpty with a mic posted outside Downing Street. Newsnight resembles a Highgate dinner party - reality and rigour rarely penetrates.

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  13. An economist asks: isn't Taleb's main point just trivial? I mean, every educated economist has known since Frank Knight wrote Risk, Uncertainty and Profit in 1921 that some (many?) dangers are unquantifiable. And we've known since at least October 87 that the distribution of returns is non-Gaussian, at least in extremes. And everyone knows there are tons of risk (liquidity risk, tail risk, correlation risk and so on) that can't be captured easily by mean-variance tools.
    Of course, bank bosses didn't say this. But no sentient being has ever been stupid enough to believe a boss, have they?
    It seems to me that Taleb is doing little more than just stating the bleeding obvious.
    What am I missing?

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  14. Those who don't live in the UK can watch a video of NNT's Newsnight appearance here.

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  15. The problem, Rus, is that the facts you cite do not fit the approved media narrative, which has nothing to do with arriving at the truth.

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  16. Thank you, Dave,

    I have been searching everywhere for this Newsnight episode.

    Nassim Nicolas Taleb is absolutely correct, and giving voice to a misuse of statistics that we all see happening every day. A lot has to do with overgeneralizing the short term. If yesterday and last week things were holding up, and there is no indication that tomorrow or next week things will collapse, then the decision is a go. But also, within short samples of time, good business and good people can be let go because of short term fluctuations.

    The application of his thinking, even a simplified version of it, the social acceptance of bad statistics use for the sake of political and monetary gain in the shorter term, points to how poorly businesses are run nowadays, how people can be "successful" in their jobs, "outperforming" more responsible peers, while making devastating decisions.

    Issues that we will need to deal with, or absolutely should deal with, if we can ever see this far down deep, have to do with prejudices at the civil rights level. Good people have been fired and good programs ignored, so that profiteering and quick-buck reputations could be made.

    It will be interesting to see if the adjustments made in the market in the next few weeks have anything to do with being sure the companies invested in are really good investments for the long term. This type of investment practice, if it can be maintained into the next couple years, and if its reasonings can be sorted out by the companies looking for investors, this has to change policy. Such a change in policy will show the growing disgraces involved with investment and business practices the last decade or so.

    By the way, this last couple terms of Bush's presidency have show the type of support that can be given to bad business. Part of what has had to happen, in order for America to fund the wars and occupations, is to keep everyone working, so that the economy can support paying for these ventures. You would not want to attack such a system that last week was bringing in the money, and it looked like next week would be as well. Only when, on a short term basis, it looked like the downfall was in sight, did President Bush call for "emergency" economic procedures, a panicky bailout package that would need to be decided upon without the necessary time to consider its ramifications.

    Yours,
    Rus

    P.S. Frank: I agree and see what you mean. Hopefully, a call for responsibility will force things out into the open.

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  17. My apologies. That was me, signed into my IBPC e-mail account that was created by David Ayers. That's why it says that David wrote it, instead of me.

    Yours,
    Rus

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  18. "Economists Robert Merton and Myron Scholes won the 1997 Nobel Prize in economics. Their formula for evaluating stock options laid the ground work for risk-management in modern financial markets. Naseem Taleb, a professor at New York University and hedge fund owner, wants their prize revoked. Taleb talks with Renee Montage about why" on National Public Radio's Morning Edition.

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  19. So Rus, let me get this straight: the republicans accuse some of the democrats for not being 'democratic' enough. That may be true, but it doesn't really strengthen their own position about a self-regulating free market, does it?

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  20. Hi Bob,

    That would be more the Libertarian position. See Bob Barr 2008. However, the Libertarians would have had the market free in the first place. Without the government support of Fannie Mae and Freddie Mac, there would have been no need for regulatory agencies to check them, nor Finance Committees to watch them.

    Yours,
    Rus

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  21. The YouTube video pointed to by Dave is a badly chopped up version where you lose all continuity and context through not hearing what Emily Maitlis, Paul Mason and the two conventional economists were saying.

    I strongly advise people to check out the full programme of 30 minutes on the iPlayer before it disappears this Friday evening.

    It was cool to find this blog, Bryan, as I was googling for Taleb. Respect for going online in the way you evidently have.

    Has anyone mentioned the important connection between doubting Gaussian distributions for finance and the very same idea in climate science? In fact, once you take an honest look at the subject, both 'climate' and 'science' come to seem ridiculous terms. It turns out that climate (traditionally - and totally arbitrarily - defined as the weather averaged over 30 years) never smooths out, it's more like a fractal situation where the complexity just keeps on coming, whatever time period you choose.

    Kolgomorov and Hurst pioneered the maths of 'long term persistence' back in 1940 and 1950. It means we need thousand of years of brilliantly accurate weather data to even begin to see trends. As I see it it's the same issue as Taleb cites (and as an Englishman may I say I deeply admired and appreciated the anger last Friday, given all that's at stake.)

    We're not at all good as a hunan race owning up to the fact that we don't understand, that we can't predict it, let alone control it. The problem is, that makes us particularly bad at adapting to it.

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  22. The video is no longer available on Newsnight's site. And like you say the YouTube version linked is so chopped up as to be unintelligible.

    Anyone have alternative links?

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