onsdag 5 oktober 2011

Taleb: World Faces ’Bigger Problem’ Now Than 2008

Every body seems to understand Greece has to defalt. Now its all about "backstop" . That is trying to build firewalls in order to stop the contageous spread effects.

Problem nobody knows or rather has ANY idea where it will blow up and how big of a blast it will be. See below regarding the Morgans example:

It’s rumored that Morgan could lose as much as $30 billion if some French and German banks fail. (That’s from Federal Financial Institutions Examination Council, which tracks all cross-border exposure of major banks.)

$30 billion is roughly $2 billion more than the assets Morgan owns (in terms of current market capitalization.)

But Morgan says its exposure to French banks is zero. Why the discrepancy? Morgan has probably taken out insurance against its loans to European banks, as well as collateral from them. So Morgan at least feels safe.

Should it? Does anyone remember something spelled AIG? That was the giant insurance firm that went bust when Wall Street began going under. Wall Street thought it had insured its bets with AIG. Turned out, AIG couldn’t pay up.

Haven’t we been here before?


Nassim Nicholas Taleb, author of the best-selling book “The Black Swan,” said the current global market turmoil is worse than it was in 2008 because countries such as the U.S. have larger sovereign-debt loads.

“Definitely, we face a bigger problem now and we will pay a higher price,” Taleb, who is also a professor at New York University, said today at a news conference in Kiev, referring to the turmoil during the last global financial crisis. “The structure of the problem has still not been understood. We haven’t done anything constructive in three and a half years. Nobody wants to do anything drastic now.”

Concerns over the global situation have intensified asEurope’s debt crisis deepened and the U.S. economy showed signs of slowing. Standard & Poor’s lowered the U.S.’s credit rating for the first time in August, criticizing lawmakers for failing to cut spending or raise revenue enough to reduce record budget shortfalls.

Federal Reserve Chairman Ben S. Bernanke signaled yesterday he’ll push forward with further expansion of monetary stimulus if needed.

Taleb urged countries to keep their budgets balanced, criticizing President Barack Obama of “loading the U.S. with debt that our children will have to pay” and said that growth fuelled by government debt isn’t really growth.

“Someone made a mistake lending and someone made a mistake borrowing,” said Taleb. “It is a mistake to transform private problems into public debt.”

The U.S should “be aware of the importance of fiscal wisdom,” he said at the news conference, organized by investment bank Investment Capital Ukraine.

Taleb popularized the term black swan, which derives from the once widespread Western belief that all swans were white --until explorers discovered the black variety in Australia in 1697. He argued that unforeseen events with a large impact on markets occur more frequently than statistical analysis predicts, thereby justifying the high cost of hedging against disasters.


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