Monday, April 15, 2013

A Black Swan....

Beavers really should understand
"tail risk" !

Despite the exquisitely accurate and devastatingly convincing efforts of Nassim Taleb, the tyranny of false prophet economic risk analysis is alive and well; and, the financial stability of the U.S., therefore, remains "statistically at risk". Dangerously, there appears to be a fanatically dogmatic, econo-terrorist "sleeper cell" of  "propheteers" embedded and still beavering away within the Duchy of Duke Street.  (Credit unions beware !!)

If you're not familiar with Mr. Taleb, you should pick up a copy of his book "The Black Swan" which was first published in 2006,  just before the collapse of the U.S. financial system.  In the book Mr. Taleb correctly predicted the crash and handed the "economics as a mathematical certainty" crowd their heads in a hand basket, even reducing "the once sainted" Alan Greenspan to the point of looking fumblingly foolish.  (Bring any person or Agency to mind ?)

As one commentator said:  "Taleb is the real thing.  He rightly understands that what brought the global banking system to its knees isn't simply greed or wickedness but... intellectual hubris." (Bring any person or Agency to mind ?)

So, what is a "black swan"?...

Where'd you come from?
Well, here's the background idea:  "Before the discovery of Australia, people in the Old World were convinced that all swans were white, an unassailable belief as it seemed completely confirmed by empirical evidence.  The sighting of the first black swan [in Australia illustrated]... the fragility of our knowledge. One single observation can invalidate a general statement derived from millennia..."  

Mr. Taleb said a "black swan" event had three characteristics. First, it's an event which "lies outside the realm of regular expectations, because nothing in the past can point convincingly to its possibility."(And therefore we tend to believe that the existence of a black swan is impossible.) Second, a black swan event "has an extreme impact". (Our perception of reality, the possible, the truth is changed.) Third, human nature makes us concoct explanations for the black swan event after the fact, making it explainable and predictable."

We are in the midst of that "concoction" phase
 within the Duchy of Duke Street.

Stay tuned for the "Emp-IRR*-icals New Clothes"...

*... intellectual hubris(k)

1 comment:

Anonymous said...

The SIRRT process utilized by NCUA now cannot be consider a Black Swan event of the chance of being correct in predicting a problem credit union in the future.

I guess now we have to just figure a blind pig finds an ear of corn every now and again!