Taleb: "We're heading in exactly the wrong direction... This is going to fail"

If you ignore the financial experts who stand to personally benefit from the financial bailout and you ignore the “experts” who really aren’t experts, you’re left with a group of economists — including Nobel Prize-winners Paul Krugman and Joe Stiglitz and former IMF chief economist Simon Johnson — who agree the financial bailout of megabanks by taxpayers is wrong, wrong, wrong.

Another who predicted this financial collapse and understands what’s going on is Nassim Talib — professor of risk management and author of The Black Swan. Taleb — clearly in the Krugman-Stiglitz-Johnson camp — says the plan is unfair and won’t work:

“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.” …

“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?”

Posted by James on Saturday, April 04, 2009