Nassim Taleb Says Geithner’s Bank Plan Will Fail

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http://www.bloomberg.com/apps/news?pid=20601087&sid=a7DbIc6WLhmU&refer=home

Taleb Says Geithner Bank Plan Is Too Limited, Will Fail April 1 (Bloomberg) -- Nassim Nicholas Taleb, author of the best-selling finance book "The Black Swan: The Impact of the Highly Improbable," talks with Bloomberg's Erik Schatzker about U.S. Treasury Secretary Timothy Geithner’s plan to remove toxic assets from bank balance sheets.

Watch Bloomberg Video: http://www.bloomberg.com/avp/avp.ht...//media2.bloomberg.com/cache/v1p0xhiQAGB8.asf

Nassim Taleb Says Geithner’s Bank Plan Will Fail

By Jeff Kearns and Erik Schatzker

April 1 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner’s plan to remove toxic assets from bank balance sheets will fail to revitalize the financial system, “Black Swan” author Nassim Nicholas Taleb said.

“We’re heading in exactly the wrong direction,” Taleb said in a Bloomberg television interview. “I want an overhaul, I want something drastic. This is going to fail, this is not it.”

Geithner has proposed to revive banks without resorting to nationalization through the Public-Private Investment Program that will buy difficult-to-value assets. Leaders from the Group of 20 nations meeting in London this week are unprepared to fix the global financial system because they don’t grasp how markets work or the root causes of the credit crisis that has led to $1.2 trillion in losses and asset writedowns, Taleb said.

Rare and unforeseen events are known as “black swans,” after Taleb’s 2007 book, “The Black Swan: The Impact of the Highly Improbable.” Taleb is a professor of risk engineering at New York University and also advises Universa Investments LP, a Santa Monica, California-based firm opened in 2007 by Mark Spitznagel, Taleb’s former trading partner.

The Treasury’s plan is unfair to taxpayers and rewards the failure of banks that didn’t understand the risks they took when using debt to boost returns in the mortgage market, Taleb said.

Subsidize Failure

“I don’t understand why I as a taxpayer need to subsidize those who failed, by giving them options so they can rebuild their balance sheets,” he said. “Taxpayers take the downside and Wall Street as usual is going to take the upside, another classical problem of socializing the losses, privatizing the gains.”

Taleb said it’s “shocking” that the government would allow banks to estimate the value of the toxic assets that remain on their books because there is effectively no market for the securities, making them almost impossible to value.

“I don’t understand letting banks mark to market, after all this incompetence,” he said. “Why don’t we allow people to mark their house at what they think the value of their house is?”

To contact the reporters on this story: Erik Schatzker in New York at eschatzker@bloomberg.net; Jeff Kearns in New York at jkearns3@bloomberg.net.
Last Updated: April 1, 2009 10:34 EDT
 
Hard to disagree with him. We need to be moving towards smaller financial institutions, because their failures would not be so traumatic. Instead, the government is doing the opposite, propping up a handful of too-big-to-fail incompetents. Taxpayer money is going by the hundreds of billions into the worst of the worst, forcing us to pay for their mistakes.

Get rid of these idiots and put Volcker, Isaac and Seidman in charge.
 
Quote from AAAintheBeltway:

We need to be moving towards smaller financial institutions, because their failures would not be so traumatic. Instead, the government is doing the opposite, propping up a handful of too-big-to-fail incompetents. Taxpayer money is going by the hundreds of billions into the worst of the worst, forcing us to pay for their mistakes.
More...

I agree.
 
I still don't understand what gives Taleb credibility ... just because he wrote two semi-entertaining (though highly narcissitic and blatantly obvious) books does place any more value on his judgement.

Why in the world we listen to people like this, I don't know.

He isn't saying anything knew -- he is just raising an ethics issue.
 
Quote from Corey:

I still don't understand what gives Taleb credibility ... just because he wrote two semi-entertaining (though highly narcissitic and blatantly obvious) books does place any more value on his judgement.

Why in the world we listen to people like this, I don't know.

He isn't saying anything knew -- he is just raising an ethics issue.
More...

I agree. Few care what he thinks about this topic. Just another useless thread.
 
Taleb, according to the article, did not bother to tell us why the Geithner plan would fail, but only that it would. I'd like to know the Why. "Too limited" just doesn't do it for me. I fail to see the connection between the plan's unfairness to tax payers and its likely failure. To give Taleb his due, this was afterall a news story, and as such may have little relationship to what Taleb actually said.
 
Tim's plan is equivalent to gov buying the toxic asset at bank's price. By the way, gov doesn't get the upside neither. So, this is the worst of all plans.

I actually disagree with him. The plan will work very well since the deal is too good for banks to pass up.

Don't agree with me. Read the example yourself and draw your own conclusion. (2 boxes near the end of the page)

http://www.treas.gov/press/releases/tg65.htm
 
there are 5 certainties in life

death, taxes, and roubini+ taleb+ rogers will be bearish/gloom and doom. if the dow was at 300, they would say its going to 150 and this is their finest hour.
 
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