Thursday, August 13, 2009

The Parallel Reality: Nassim Taleb and Elizabeth Warren

A lot of good videos out there this week; have been trying to catch up to some of them.

I often kid about the virtual world we are told to believe in of late - I use The Matrix Red Pill / Blue Pill from time to time, which amazingly seems to represent a lot of what is going on in the real world

The term redpill was popularized in science fiction culture via the 1999 movie The Matrix. The movie relies on the premise that an artificial reality that is advanced enough will be indistinguishable from reality and that no test exists that can conclusively prove that reality is not a simulation. This ties in closely with the skeptical idea that the everyday world is illusory. In the movie, a Redpill is the term used to describe a human who has been freed from the Matrix, a fictional computer-generated world set in 1999. Bluepill refers to a human still connected to the Matrix.

... for example, when people fear for the major banks viability, create a stress test; let the banks negotiate the terms of the stress test, change the accounting rules so toxic assets no longer have to be marked to their current market value, smile for the camera, and sing happy songs. Everything is ok. And if everything is not ok, well that is fine too - the taxpayer money will always sit outside the door waiting to go inside. Which implicityly feeds on itself - invetors know its ok to invest because the government will save them, which allows the government to not to have to save them as private money floods in. See how circular it is? Free market capitalism I believe they call it. This seems to be what we see inside the Matrix.

Outside the matrix is where some of the blogosphere sits and I am reaching the point where I am not sure if those of us inside the matrix (blue pill) or outside (red pill) are the crazy ones. The madness of crowds seems to be confusing me.

Below are 2 videos - one from Elizabeth Warren who has been an appointed watchdog of a portion of this finanical mess and the other from the apparently controversial Nassim Taleb, he of Black Swan fame. Everything I've seen of Warren is impressive and she reminds me of a Volcker type.... honest, genuine, speaks her mind, rational, common sense, fighting for the little guy. Hence I expect her to be increasingly ignored and squeezed out; but at least she still has the media pulpit. Taleb fascinates me but apparently is a quite polarizing figure on the internets.

Courtesy of Clusterstock on both videos - and it is amazing how similar the 2 commentaries are. Either these very smart people are fools (or have chewed on the red pill), or the mob has been taken for a ride. As an investor we have to ignore reality (take the blue pill) and join the mob lest we make no money; but as a non investor I believe the red pill is still best.


Elizabeth Warren says....

The banks are still insolvent.
  • That little tweak to mark-to-market accounting a couple of months ago has allowed us all to plunge into deep denial.
  • Now that the banks are allowed to lie about what their toxic assets are worth, they'll never sell them (because if they did they would have to write them down).
  • The smaller banks are undercapitalized and will have to raise another $12-$14 billion. And so on...


Nassim Taleb says

In sum:
  • We're all in denial
  • We're replacing private debt with public debt.
  • We're not dealing with the cancer in our banking system.
  • We're not making the structural changes we need to make.
  • We're not being aggressive enough about restructuring debt (debt for equity swaps).
  • Bernanke is a wimpy Greenspan sycophant
  • Obama's rewarding the fools who got us here (Summers, Bernanke, Geithner)
  • The banksters are taking over again

[Jul 6, 2009: Nassim Taleb - We're Still Mid Crash]
[Apr 8, 2009: 10 Principles for a Black Swan Proof World]
[Apr 2, 2009: The Tale of Political Influence in Changing Accounting Rules, Nassim Taleb on CNBC]
[Dec 4, 2008: Nassim Taleb on Charlie Rose]

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