Op-Ed: Black Swan Nation, Part 1-Minyanville

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Op-Ed: Black Swan Nation, Part 1

Minyanville Staff Sep 22, 2008 1:24 pm


		Fed's legacy one of crisis and collapse.

Editor's Note: James Quinn is Senior Director of Strategic Planning at a respected University.

When plans to save the financial world are slapped together every other weekend, the law of unintended consequences is likely to rear its ugly head. It is hard to step back and try to understand what’s going on at this point in history. What I do know is that whatever’s happening, it isn’t good.

As Nicholas Taleb wrote in The Black Swan, his brilliant, irreverent book of 2006:

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“Globalization creates interlocking fragility while reducing volatility and giving the appearance of stability. In other words, it creates devastating Black Swans. We’ve never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks - when one fails, they all fall. 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…True, we now have fewer failures, but when they occur ….I shiver at the thought.”

Taleb shivered - and now the whole world is shivering. The threat of a global collapse has never been closer. The last global collapse led to the Great Depression, which lasted from 1929 until the US’ entry into World War II in 1941.
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Minyanville's Why Wall Street Will Never Be the Same

The world’s in the midst of a Black Swan event, and people who fail to recognize what’s happening will suffer catastrophic consequences. According to Taleb, a Black Swan event has 3 attributes:

1. It’s an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility.

2. It carries an extreme impact.

3. In spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

Taleb makes the case that most “experts” believe we live in a normal distribution world - but the world’s really dominated by Black Swan events, which should occur only rarely in the long tail of the normal distribution curve. Based on the last ten years, I would have to agree with Mr. Taleb:

1998: Long Term Capital Management
2000: Dot-com bubble
2001: 9/11 attacks
2005: Housing bubble
2008 : Financial implosion

I believe that these extreme events are interrelated, and have built upon each other to leave us in our current precarious position. We’ve become a “Black Swan Nation.”

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Comments (15)

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Richard Angle

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09-22-2008, 9:14 pm
It strikes me that the main attraction of Taleb's "Black Swan" is that it provides and explanation and excuse for what has happened. It relieves all of us of any responsibility. (As in - no could have predicted the unpredictable). Read More

Richard Angle

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09-22-2008, 9:16 pm
...that "this time it's different". Gosh, I've NEVER heard that before:). Read More

David Skins

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09-23-2008, 1:18 am
a vagrant. Yes, this long surmised contageon has been in view for quite some time. Without regard for cause or purpose The Black Swan circles and when exponential skies darken the arrival so abrupt, leaves only time for reaction...or not. Read More

Paul C

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06-12-2009, 5:00 pm
People like to think that they are rational creatures. They like to think that they are honest. They like to think that they are more interested in virtue than in power. Therefore, in order to get what they want, people lie to themselv Read More

Matthew Felix

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06-13-2009, 4:15 pm
The Depression was really only a true depression for 4 years or so. After 1935 the business climate improved remarkably, aside from a significant relapse in '37. By late '39 the military buildup (combined with latent capacity) in anticip Read More


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