Links 6/18/08

Goldman’s Blankfein issues apology as bank prepares to repay $10bn Telegraph

King calls for banks to be ‘cut down to size’ Guardian

"An Interview with Paul Samuelson" Economist’s View

In reform, more of the same Marshall Auerback. This line sums up his view about Obama’s reforms: "As with so much of the Obama administration, great-sounding words, but nothing in the way of substantive change."

JPMorgan, 4 Banks Repay $54.7 Billion in Rescue Funds  Bloomberg

U.S. Banks Decline After S&P Cuts 18 Ratings on Regulation Bloomberg

Eddie Bauer files for Chapter 11, to be sold to Rainier Reuters

The Case for California Defaulting, Even If It Won’t Paul Kedrosky

Mega-bonuses could stage a quick comeback Telegraph

Swan Song: First he was very famous, now he’s very rich. But Nassim Taleb is still wrong. The Big Money. Interesting anti-Taleb take. For my money, catastrophe insurance a la Taleb is warranted at specific times when markets become extremely overbought.

President Obama’s Regulatory Reforms Announcement: A Viewer’s Guide  Simon Johnson

Latvia: A lat to worry about FT. Wonderfully long and comprehensive article

Fitch to keep sovereign debt rating unchanged  Japan Times. AA- for having nearly 200% debt to GDP? OK.

Household financial assets lowest since ’04  Japan Times. This is a global phenomenon.

IPhone 3G S Review Roundup PCWorld. A lot of good things are being said about this new phone, available starting Friday.

Beaked, Bird-like Dinosaur Tells Story Of Finger Evolution Science Daily

Antidote du Jour:


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About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward


  1. Anonymous Jones

    I love the stumbling-in-the-dark embarrassment that composes the anti-Taleb contingent. Taleb's main insight was and always will be that we know less than we think we do. You know what? He was right about that. Deal with it and move on.

    This Slate article has a great "summary" of Taleb's insight: "that people always underestimate the chances of improbable, out-of-the-ordinary events." Um, if you'd actually read his work, you'd know that he points out the research work in cognitive bias has shown that with regard to certain risks like airplane crashes, people always OVERESTIMATE them. In other words, humans face a failure of overestimation and underestimation, combined with a little of the broken-clock-is-right-twice-a-day thrown in. In other words, as hard as this is for your ego to admit, you know less than you think you do.

    Further, Taleb makes a good case to follow the profession of dentistry, not to make one's life's work a bet on catastrophism. Of course, as this writer points out, it's better to be AIG and make money consistently and quietly as long as the black swan arrives 100 years later. You could have just as well said it's better to be lucky than good. Kudos. Um, not really. The point is that AIG was consistently *making the wrong bet* (on a percentage basis). No one saw it until it was exposed, however. I can assure you that if you spend enough time at the craps table, your wrong bets will eventually be exposed, no matter how many long episodes you quietly and consistently amass winnings. The house has the advantage, as long as your dice aren't crooked. It may not be apparent for long, long stretches, but you are making the wrong bet, and it will eventually ruin you.

    It is always amusing to read people who are so emboldened to actually write down *and publish* their thoughts just go on to embarrass themselves in every conceivable way.

  2. Richard Kline

    Windowdressing. An overused word and concept, but in case of Prez O's flummery of a financial 're-regulation' no word says it better. Nothing is changed; nothing is meant to be changed. We don't just have regulatory capture, we have governmental capture, and hence sovereign capture: our country by a handful of financial oligarchs.

    The one thing which _has_ changed in consequence of this financial crisis is the sovereign debt chargable to you, me, and everybody in this country. We got billed for the all the bad bets of the Bad Boys, and that's not chump change that we're on the hook for. —Or it literally IS chump change, read another way. The citizenry are chumps so long as this change is the change they accept. Obama, Summers, Geithner and all the rest have every reason to believe that the public can be played for chumps. The audience size for American Idol confirms that view regularly.

    So that's it on the re-reg, folks. A little saleable 'moral outrage' over executive compensation, which will be watered down, then quitely eliminated in three point five years. Some window dressing which prevents absolutely nothing of the ruin and fraud of the last twenty years, but embeds the concept that the US government can and will bail out any private speculation no matter how large so long as it is truly large.

    . . . The worst of all possible outcomes. Literally, doing nothing would be better because we would know that nothing was done.

  3. Alashan

    I believe the article on NN Taleb is rather wrong. As most critics of NNT, he focuses on a few points and summarized hastily what he read from the book. What deranges most people with Taleb is his writing style, as he's going after certain professions with rash attacks, making one forget the logic and the arguments behind it.
    Another point is that Taleb does NOT only speaks about markets. He was a trader and thus speaks from his experience (and not from his non-experience as dentist or lottery winner). In the end he speaks about everyday life, unexpected events that can change your life for the better and the worse.
    I read Fooled By Randomness last June and that was complete luck: i just overheard a friend talking about it and saw the book on my way out from the library. I went back to the queue with the book in my hand without actually knowing what it was about, and it changed my way of seeing the world. It's probably the best book i've read with Sennecca and Epictetus.
    That's what i think is a Black Swan or pure luck or whatever, stock market or real life, in the end we're all subjects to the unexpected. That's what's makes life wonderful and horrible at the same time :)

  4. Let It Sink

    The anti-Taleb article was superficial and missed the point. The author made an observation that the winners and losers in a black swan event are two sides of the same coin. But then completely blew it. He failed to understand that Taleb says that when you bet on a Black Swan, and it can be either a bullish or bearish black swan which everyone seems to forget, that you know how much you are risking. The drunken gamblers on the other side of the bet have no such limits. They risk everything, be it all of their money, all of their clients' money, all of their shareholders' money, or the entire world financial system. It seems like the author should reread the book or get a job at Fox.

  5. William Mitchell

    Gimein's article is poorly titled, because it doesn't actually argue Taleb's option strategy is wrong. It merely says it's hard to sell to limited partners.

    Taleb himself says the same, ad nauseam. So Gimein's article is really adding no value. He should have read or re-read Taleb before posting, and saved us all some time.

  6. russell1200

    In simple term the dinosaur story puts another nail in the coffin (as if another one should be needed) of creationism.

    A minor argument on the birds are dinosaur debate is that bird claws are not set up the same way as dinosaurs. Birds have a "thumb", but the dinosaurs they came from had lost their thumb.

    This dinosaur shows that it is possible for the thumb to be lost and the first digit (finger next to the thumb) to become a "thumb". Thus the birds "thumb" is actually a modified first digit.

    It is not a direct missing link, but shows that what was thought to be difficult is possible.

    with regards to Taleb. I agree with the above poster, his argument on knowing weather you are in an extreme environment or normal distribution environment is very important. In general he would say live in the normal distribution environment, but take careful bets into the extreme environment to get many small percentage opportunities at a big payoff. Look for opportunities where the extreme events tend toward the positive.

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