Zwei Interviews mit Nassim Taleb:

Risk guru Nassim Taleb talks about why Wall Street fails to anticipate disaster.

By Eric Gelman, assistant managing editor

(Fortune Magazine) — In two bestselling books, “Fooled by Randomness” and “The Black Swan,” Nassim Nicholas Taleb has explored the ways people misunderstand randomness and risk. At the heart of his thinking is the idea of a “Black Swan” – an unlikely but not impossible catastrophe that no one ever seems to plan for. In an e-mail and telephone exchange with Fortune’s Eric Gelman that began with Taleb in the Yucatán for the equinox, the New York City-based former trader turned scholar and essayist expounds on the role of Black Swans in the current market crisis.

What is a Black Swan?

What I call a Black Swan is a surprise event – like the discovery of the black bird in Australia, which was unpredictable because swans in the Old World were all white. But unlike the bird, my Black Swan carries large consequences.

There are two types of businesses: those that are exposed to Black Swans and those that are relatively insulated from them – not because Black Swans cannot occur, but because their impact is not going to be monstrous. Your dentist’s income will not disappear on a single day: No single event will carry big consequences for her. But trading profits can all be lost by a single transaction. So some businesses are insulated, some (like technology) are exposed to positive Black Swans, and others are exposed to negative ones.

Most people seem to have been caught off-guard by the subprime crisis, yet such an event was not only predictable but also inevitable. It was a Black Swan, yes?

The Black Swan is a matter of perspective. A turkey is fed for 1,000 days – every day lulling it more and more into the feeling that the human feeders are acting in its best interest. Except that on the 1,001st day, the butcher shows up and there is a surprise. The surprise is for the turkey, not the butcher. Anyone who knows anything about the history of banking (or remembers the 1982 Latin American debt crisis or the 1990s savings and loan collapse) will tell you that the subprime crisis was so bound to happen. Banks are exposed to such blowups. Bankers have been the turkey, historically.

So I call these crises “gray swans.” I’ve been telling anyone willing to listen that banks have a tendency to sit on time bombs while convincing themselves that they are conservative and nonvolatile.

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The idea that catastrophe can strike without warning does not seem particularly hard to understand. Why doesn’t Wall Street ever seem to allow for that possibility? And why doesn’t it learn from past catastrophes?

Let me blame business schools and the financial economics establishment – they have a vested interest in promoting models and devaluing common sense.

I worked on Wall Street for close to two decades in trading and risk management of derivatives. I noticed that while portfolio models got worse and worse in tracking reality, their use kept increasing as if nothing was happening. Why? Because in the past 15 years business schools accelerated their teaching of portfolio theory as a replacement for our experiences. It looks like science, and they have been brainwashing more than 100,000 students a year. There is no way my experiences can be transmitted to the next generation because of these schools. We’ve had fiascoes in finance that they need to neglect because they contradict their models. The problem may also be the Nobel in economics that gave a stamp to these junky theories. Someone needs to make the Nobel committee account for this, for the damage to society – and I hope to do so.

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Is there something fundamentally wrong with the structure of the U.S. financial system? What can be done to fix it?

In the past, the financial world had a very diversified ecology: banks going bust on a steady basis. They were not all homogeneous.

Today the entire banking system is dominated by a few monster banks, and almost all have the same exposures. So the system became less and less volatile while becoming riskier and riskier. So we moved from the more resilient ecology to a more concentrated architecture. I used to say, “You trade with a bank, you end up trading with J.P. Morgan (JPM, Fortune 500).” Well, it turned out to be true with the Bear Stearns (BSC, Fortune 500) rescue.

Quelle – das gesamte Interview

Ein weiteres Interview mit Taleb

Jan. 28 (Bloomberg) — Nassim Taleb, author of “The Black Swan: The Impact of the Highly Improbable,” talks with Bloomberg’s Tom Keene about risk management and the vulnerability of financial institutions to fraudulent activity, the impact of over-expansion on the security of the banking system, and the role of governments in supporting investment banks. (Source: Bloomberg)

Nassim Taleb Says Fraud Is Avoidable With Smaller Bank System (Download oder direkt hören; mp3, 7,6 MB)

US Banken müssen nach den neusten SEC Richtlinien zu SFAS 157 ( eine Vorschrift die mehr Transparenz bringen sollte) Hypotheken bzw. Immobilien nicht mehr zu Marktpreisen verbuchen bzw. wertberichtigen wenn “those prices are the result of a forced liquidation or distressed sale.”

Diese vertrauensbildende Massnahme wird die Krise sicherlich stark verkürzen …

The Grand Delusion Rally
By RANDALL W. FORSYTH | MORE ARTICLES BY AUTHOR

A LETTER RELEASED LATE FRIDAY by the SEC about an arcane accounting rule provide the spark that set off the stock market’s explosive rally this week?

Led by financials, the Dow Jones Industrial Average Tuesday recouped nearly 400 of the 1,000 points it surrendered in the first quarter. The Financial Select SPDR surged 7% in the session, halving the nearly 14% negative first-quarter total return in the exchange-traded fund’s net-asset value, as calculated by Morningstar.

Fuel, air and a spark are required for combustion. You can have a full tank of gasoline, but a blocked air filter or a fouled spark plug will prevent an engine from starting.

In this case, the spark may have come from a letter posted on the Securities and Exchange Commission’s Web site Friday afternoon regarding Statement of Financial Accounting Standards 157, which attempts to deal with the knotty problem of placing a “fair value” on a company’s assets.

Easier said than done, especially for inscrutable assets, such as derivatives, that SFAS 157 places in so-called Level 3. Those have no “unobservable inputs,” in the parlance of the Financial Accounting Standards Board. Or, as former Defense Secretary Don Rumsfeld might have defined them, these are “known unknowns.” We may know what collateralized debt obligations are, but who knows what they’re worth?

(For the record, Level 1 assets are those for which there are active quoted markets. Level 2 assets may not have quoted prices, but there are comparable assets to provide “observable inputs” that can impart some information about their values.)

Late Friday, the SEC tried to clarify one aspect of this accounting arcana for these topsy-turvy times. Companies should use market prices to value assets, even when markets are less liquid than normal — “unless those prices are the result of a forced liquidation or distressed sale.”

“Ay Caramba!” as Bart Simpson might say. This lets everybody off the hook.

These days, when it comes to a CDO or anything that’s not an off-the-rack security, the holder is apt to contend that any sale is “a forced liquidation or distressed sale.” That means those assets shouldn’t be marked to market, but marked to model or, as some cynics say, marked to myth.

In other words, the SEC’s clarification of SFAS 157 gives financial companies lots of leeway in valuing assets, and avoiding writedowns. Those writedowns have hit earnings as well as the balance sheet. Limiting those helps stockholders on both scores; the lesser impact on earnings is obvious, while the mitigating the balance-sheet impact means a reduced need to raise capital, which is apt to be expensive or dilutive, or both.

But if the reduced values don’t have to be recognized, per the SEC’s missive, financial companies don’t have to suffer their effects in terms of writedowns. No harm, no foul, in effect.

To be sure, financial stocks also took heart from Lehman Brothers’ ability to raise $4 billion, which the investment bank swore it didn’t need, via a convertible preferred offering and UBS’ announcement of a $19 billion writedown.

The markets seemed to say the worst is over. Surely, after UBS’ monster writedown, that should be it. And Lehman’s financing indicates banks can readily refill the coffers drained by credit losses.

But to Bank of America’s credit analyst Jeffrey Rosenberg, the market’s response represented the proverbial victory of hope over experience. Weren’t Citigroup’s losses suppose to mark the nadir? Or was it Merrill’s writeoffs? Or the Bear Stearns debacle?

Or perhaps it was the license given by the SEC not to mark to market anything in a distressed sale.