Nassim Taleb was on Charlie Rose this past Wednesday, and I just got around watching the interview. I wish Charlie had scheduled Taleb for the entire hour. Last week I wrote about the current financial crisis being an opportunity to learn about how financial markets function, and I referred to the fact that I’d been lucky in dodging the major collapse of the past few months. Not all of it was luck, much had to do with Taleb’s thinking as revealed in his book ‘The Black Swan‘. If you haven’t read it yet, add this book to the top of your list. And, if you can stomach a sobering reality check, watch the interview here:
Image by LunaDiRimmel via Flickr
Over the last few months, we’ve seen a roller coaster ride of unequaled magnitude in the financial markets. Having been in the institutional banking world myself, I’ve had many friends and colleagues ask me if I can make sense of what is going on out there. Many are just worn out from the gyrations in the stock market, others are in utter panic about the collapse of their life savings. I’m no stock picker – never have been – but I did get lucky about a year ago when I decided to pull almost all of our personal wealth out of the equity markets and put it into cash or government securities. Basically, from a net worth perspective, we haven’t been hurt…yet. While that won’t help those who were deeply invested in the equity markets, I have advised them to follow the broad trends in the news, and not worry so much about the day to day, hour to hour hysteria that grips Wall Street. The problem in trying to do this, however, is that the main stream media (MSM) doesn’t provide a sober analysis of events of the day. Instead, MSM focuses on the latest crisis, or the political angle of the events as they unfold. Now, I have some opinions on the political angle, but that won’t help me (or my friends) ride through the storm. What I have suggested is to augment the daily hype that MSM dishes out with some thoughtful blogging that is going on out there. Not all blogs offer quality insight and most have a particular political-economic bent that may not be the same as yours. But, there are many that offer a good set of lessons on what has happened, and possibly on what will happen next. Here are two that are on my daily radar:
naked capitalism – This blog offers opinionated, but well thought out analysis of the nature of modern finance. From a recent post:
In 1980, financial firms accounted for 8% of S&P earnings. During the peak of our last stock market cycle, their profits were over 40% of the total.
Now consider: finance is a necessary function, but is represents a tax, a drain on the productive economy, just as defense and lawyers do (aside: I had a lawyer from an entrepreneurial family who was refreshingly aware of that issue, and would write off hours before sending bills to clients, recognizing that the amount of time her firm had spent on certain matters simply wasn’t worth it from an economic standpoint to the client). It is ironic that free market fundamentalists have so vociferously argued for unfettered markets, without understanding (or perhaps understanding all too well) that the house always wins.
Read the entire post, in fact add naked capitalism to your daily RSS feed. I don’t totally agree with the sentiments in this post, or others from this blog, but this analysis is more thoughtful – and thought provoking – then any of the crap that is pushed out in MSM.
Another blog that is worth following on a regular basis:
To be clear, this is not a “bad bank” model. Assets are not, apparently, being taken off the Citi balance sheet and put into another entity walled off from the Citi biological host. Instead, they are being left on the Citi balance sheet, but tagged and bagged for eventual disposal via taxpayers. In other words, we are, given the size and nature of the maneuver, creating a new variant on the good/bad bank model that I hereby christen “fucked” bank. You do that, of course, when removing all the toxic assets from a “good” bank’s balance sheet would leave no bank behind at all.
[Side note, as a former banker at Mellon, the good bank, bad bank structure that saved Mellon in the 1980’s was stuff of legend when I was there.]
So, while times may be tough and you may have successfully avoided boring subjects like finance and political economy in college, make it a point to spend some time every day to learn about what is actually going on out there. We are all participants in this market, and it is time to understand capital flows and how they will shape your future.