Tuesday, January 26, 2010

Nassim Nicholas Taleb XII

Nassim Nicholas Taleb in a upcoming issue of ai5000 to be released in February gives six reasons that inhibit Federal Reserve chairman Ben Bernanke:

1. His education is in tools that aren't helpful - and he doesn't know it.

2. He studied the Great Depression, but the current economic environment is not comparable.

3. Bernanke doesn't recognize that 99% of risk is tied to debt/leverage and the explosion of connectivity. It's like he did not see a truck coming right at him.

4. He has no notion of nonlinearities, and how monetary policies can be responsive in non-linear ways.

5. He doesn't understand fat tails.

6. He doesn't realize that the biggest risk of failure is signified by the Federal Reserve. We do not need more regulation. We actually need smaller institutions.

With regards to investors he advocates doing nothing with your money sometimes. "It's like smokers," he explains. "The best thing you can do for a smoker's health is to tell him not to smoke. And what has been the best investment over the past ten years? Cash and short-term bonds."

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