| I don't understand where this number is coming from. According to the data from the 2007 Economic Census... Then go check the SEC filings. If they refute Taleb's numbers, bring in the Census as corroborating data. I think that it is disingenuous to paint the entire industry as being composed of individuals out to cheat the system. I think that it makes more sense to note the behavioral economics at work. This is precisely what happened, though. The large investment banks went public and externalized their risks. 10 years of bonuses (privatized profit), then a big blowup (socialized loss). Was it planned that way? Does it matter? By contrast, private partnerships never developed as much exposure or lost as much money, since they could not externalize risks to the same degree. I bet you worked for an LLC, no? There is no great, malevolent force working in finance. The industry was governed by (and possibly still is) some pretty lackluster regulations, but it is a questionable premise to paint the entire industry as willfully fraudulent. Why not? Because you were once involved in investment management yourself, and you are a good & decent person, and therefore the industry as a whole must be comprised of similar people and follow similar patterns of behavior and judgement? This is not really the case. It is more the case that the regulators are often underpaid (relative to what they could make in the private banking industry) and over-worked (due to staffing cuts). This creates an accelerated revolving door between the public and private spheres. This revolving door makes it very hard to get any good regulations out of our current institutions. So you think paying regulators more would somehow auto-magically deal with regulatory capture? Seriously? |
Which ones? There are quite a few companies in the finance industry. If we are going to paint them as good guys and bad guys, then it is important to note that those are subjective criteria.
"This is precisely what happened, though. The large investment banks... Was it planned that way? Does it matter?"
Well, if your objective is to tar and feather people then I would suppose that it is important to find a villain.
However, if your objective is to understand what happened and how it could be prevented, then I think it is important to ask if something was planned or if it was a product of a flawed system. I can understand why you may disagree with me.
"Because you were once involved in investment management yourself, and you are a good & decent person, and therefore the industry as a whole must be comprised of similar people and follow similar patterns of behavior and judgement?"
No, actually quite the opposite. Please read my reply to another gentleman here:
http://news.ycombinator.com/item?id=2962088
If you have any questions, please ask me, I would be happy to discuss with you (regardless of the beating that my karma would likely take).
"So you think paying regulators more would somehow auto-magically deal with regulatory capture?"
There is no magic solution for regulatory capture, but the disparity in pay is a glaring problem. People respond to incentives.
Right now, many people view regulatory agencies as a career springboard to higher paying positions within the large investment banks. If the pay at the regulatory industries was more in line with what an individual with a similar background would earn elsewhere, then that would dramatically decrease this effect.
While we are talking about fixes, one more possible fix would be to dramatically restrict the creation of derivatives, because their complexity exceeds their usefulness as financial instruments at this point in time.
These are the types of things that would be useful to talk about. Dr. Taleb has both the knowledge and the breadth of experience to talk about them. Unfortunately, he chooses to focus the majority of his influence on labeling people within the banking industry as ethical and moral evildoers. (South African apartheid? Really? I find the implied analogy to be disgusting.)