Eamonn Fitzgerald's Rainy Day

If I had to Twitter a review of "The Black Swan", I'd write something along the lines of, "We live in a world that we don't understand very well and Nassim Nicolas Taleb's book is a map of this world: http://tinyurl.com/ltrsb." (135 characters). Because Twitter permits only 140 characters, there simply isn't the space to say that a Black Swan is "a rare, high-impact event beyond the realm of expectations" (74 characters) and this brings us to the banking part of the ongoing financial crisis. If I understand Taleb correctly, he says that banks use garbage techniques to measure the risk of rare events, so we are all reliant on their garbage data. As a result, the current banking crisis was inevitable. Therefore, it is NOT a Black Swan! The pilot was drunk and the plane was bound to crash.

Again, if I understand Taleb's thinking, there is no conflict between the above deduction and this passage from The Black Swan: "Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have 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 crises 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 homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur...Banks hire dull people and train them to be even duller. If they look conservative, it's only because their loans go bust on rare, very rare occasions. But bankers are not conservative at all. They are just phenomenally skilled at self-deception by burying the possibility of a large, devastating loss under the rug."

This shattering critique of banks and bankers is very similar to the thought train being pursued these days by David McWilliams.