Nassim Taleb is a vocal critic of the status quo on Wall Street, and he has plenty of memorable phrases. Here are 7 that have stood out to us.
7 Nassim Taleb Quotes
This Nassim Taleb quote gets at the heart of what upset most Americans about the Wall Street bailouts:
“We have a very strange situation in which it’s the worst of capitalism and socialism, a situation in which profits were privatized and losses were socialized.”
On Robert Rubin/Wall Street Punishment
Nassim Taleb points out in the video above,
“The only way this [the bank bailouts] will not be repeated is if you have punishment.”
Taleb mentions that Robert Rubin received $115 million from Citibank, even though Rubin led Citi to make decisions that ultimately hurt his own company (and even though he ignored emails explicitly warning him that his decisions would hurt the company, as shown in “The Untouchables”).
It gets worse. Citi received the most bailout money of any megabank—$476.2 billion in cash and guarantees, to be exact—and Rubin got to keep his extravagant pay. While we don’t know whether Rubin deserves prison time, we know that Citi’s enormous bailout and Rubin’s extravagant pay set the precedent that traders can make horrible decisions and still keep their previous bonuses. In other words, carry on.
This is a bad precedent, but what can the average citizen do about it?
What is perhaps most insulting is that Rubin went from Treasury secretary in Washington straight to Wall Street, where he used his close political ties to help make sure that Citi stayed solvent (even though it should have gone under, according to former FDIC chair Sheila Bair).
On Big Banks
Before the financial crisis of 2008 occurred, Nassim Taleb warned that a concentrated banking sector would lead to stark catastrophe. In The Black Swan he warned:
The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogenous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur… I shiver at the thought. I will rephrase here: we will have fewer but more severe crises.
After the crisis hit, Taleb wrote an addendum to The Black Swan that included 10 principles for an antifragile economy. Among the principles were such things as:
- What is fragile should break early while it’s still small
- No socialisation of losses and privatisation of gains
- Compensate complexity with simplicity
The principles also include the quote in the image above. What’s most important here is that we have the choice right now, while things are relatively stable, to prevent another large-scale banking meltdown. With enough political will we could end “too big to fail” and save ourselves a future headache.
On The Crisis Of 2008
Local lenders don’t have this kind of sway in Washington, so if citizens are tired of the Washington/Wall Street revolving door, they should consider switching to a local lender. It’s one step we can take to end this strange system of privatized profits and socialized losses.
In Nassim Taleb’s Reddit AMA he talked about one of his favorite topics: ‘skin in the game.’ It’s a concept at the heart of the injustice we’ve seen in recent years on Wall Street, where megabanks made enormous derivatives bets backed by taxpayer money and lost. In other words, these banks didn’t have enough skin in the game; they got all the upsides in the good years (lots of bonuses) and didn’t have to experience the downsides during the bad years (losing all their bonuses retroactively).
It’s a central reason so many people feel angry about the bailouts.
Taleb’s ongoing criticism of Wall Street (where he was trader for over 20 years) is that the people there do not have enough skin in the game. He argues that traders shouldn’t have any bonuses, and that there should be strong clawback measures in place. In addition, he asserts that we need to decentralize the banking system so we never again have to listen to arguments about banks being “too big to fail.”
This leads us to a specific quote that stood out to us from today’s AMA.
A participant asked Taleb this question: “What can the average joe do to make sure “skin in the game” is enforced on those in power?”
And Taleb responded succinctly:
“Decentralization is where we start. Vote for that and for people promoting it.”
That concise answer is exactly what TooBigHasFailed.org is all about.
Stabilization won’t save us - Nassim Taleb, NYTimes
“Consider the difference between Silicon Valley entrepreneurs, who are taught to “fail early and often,” and large corporations that leech off governments and demand bailouts when they’re in trouble on the pretext that they are too big to fail. Entrepreneurs don’t ask for bailouts, and their failures do not destabilize the economy as a whole.”
When Cyprus tried to essentially steal up to 10% of depositor’s money to save their big banks, citizens protested and their government backed down.
Nassim Taleb compared the situation in Cyprus to our big bank bailouts: “We are learning from the Cyprus episode that people get a lot angrier when they are directly ripped off by bankers than when indirectly scammed by them via taxes or deficits.” That is, we’re experiencing the same consequences in other places in the West, but because the consequences aren’t so direct and quick we don’t get as angry. (But we should.)