Friday, December 12, 2008

Being Nassim Nicholas Taleb IV

Nassim Nicholas Taleb's wisdom keeps coming. Not only did he predict the financial crisis two years ago in The Black Swan, he recently wrote about hedge fund risks. In a recent Newsweek article Taleb wrote:

"Along with a more dynamic economy came a culture of wild capitalism, and also a shift toward more computerized trading and financial modeling, which people think is scientific (because the guys who invented it won Nobel Prizes), but it really isn't. The risk models these hedge funds run aren't reliable. Business schools should stop teaching them."

If I'm remembering correctly, Taleb also wrote in a Time article that hedge funds are better risks managers than banks, as the latter deals with public money. With the indictment of Bernard Madoff, former NASDAQ chairman, who was arrested and charged today with defrauding investors of $50 billion dollar in a Ponzi scheme, one wonders.

Although Mr. Madoff's firm is not a hedge fund, hedge funds promoted his funds to other funds where wealthy individuals had invested according to the New York Times. Investors, including retirees, universities, and charities, are confronting "serious to devastating" losses. These losses affect the public too. Are there no regulations for firms as Mr. Madoff's and hedge funds who promote them? Are there no annual reports to the Securities and Exchange Commission?

Regarding greed and corruption, the beat goes on...

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