“It Wasn’t A Black Swan” – Nassim Taleb Blasts Bail-Outs As Misguided And “Morally Unacceptable”


Throughout his career, Nassim Taleb has always demonstrated an uncanny gift for good timing. The publication of his book “The Black Swan”, in 2007, immediately preceded the financial crisis – one of only a small handful of genuine “Black Swans” to emerge in recent decades – instantly launching him into the pantheon of pop-intellectual superstardom.

However, Taleb – who claims his “core identity” is that of an options trader – never seemed quite comfortable with this position. And he swiftly set about rocking the boat and embracing controversial ideas that were deemed “fringe” by some mainstream economists.

A line appeared to be crossed when Taleb praised Trump and Trumpism shortly after the president’s election.

A perennial skeptic and believer in the dangers of “moral hazard”, Taleb sat for a remote video interview Friday morning on CNBC’s “Squawk Box” and shared some thoughts about the federal government’s response to the pandemic, where he expanded on a point made earlier this month during a contentious interview with Chamath Palihapitiya.

Not only does Taleb agree with Chamath’s point that bailing out the airlines would do little to protect jobs. Instead, the money would essentially line the pockets of wealthy shareholders and reinforce “incompetent” management practices like corporations issuing debt to buy back stock, since Chapter 11 bankruptcy protection allows airlines to continue operating, while shareholders are wiped out and creditors are forced to agree to more amenable terms, the notion that corporate bailouts would protect jobs is a “myth propagated by Wall Street.”

Bailing out the airlines while tens of millions of workers watch their jobs evaporate wouldn’t just be a misallocation of limited resources, it would be a straight-up moral failing, Taleb argued.

“‘Bailing out’ is a financial transaction,” Taleb explained “An airline will always fly.” To rescue investors who knowingly risked there capital, and should now be left to suffer the consequences, since those are the rules of the game, would “not be morally acceptable,” Taleb said.

Taleb also repeated some comments he’s made advocating for the wearing of masks in public.

Watch the clip below:

Source: CNBC

Earlier in the interview, Taleb also seized the opportunity to correct a common misunderstanding about his “black swan” concept. The coronavirus isn’t a “black swan”, Taleb explained – pandemics have been happening for thousands of years, there have been other near-pandemics since the SARS outbreak back in 2003, and the risk to contemporary society was well-documented by scientists and people like Bill Gates.

The pandemic, Taleb said, is simply a “white swan”, meaning just a regular ol’ crisis. The ‘black swan’ is something like the financial crisis: Something extremely complex, that few or almost nobody saw coming (at least nobody in the mainstream discourse), with little in the way of precedent. Though there have been many financial panics since the dawn of the modern American economy, such a massive collapse in the housing market was almost unfathomable, as anybody who has seen “The Big Short” should understand.

This theme was explored in more detail in a recent piece for the “New Yorker.”

“The Black Swan” was meant to explain why, in a networked world, we need to change business practices and social norms—not, as he recently told me, to provide “a cliché for any bad thing that surprises us.” Besides, the pandemic was wholly predictable—he, like Bill Gates, Laurie Garrett, and others, had predicted it—a white swan if ever there was one. “We issued our warning that, effectively, you should kill it in the egg,” Taleb told Bloomberg. Governments “did not want to spend pennies in January; now they are going to spend trillions.”

Before we go, we’d like to leave readers with one last snippet from the New Yorker piece. Taleb has long harbored skepticism about the pros and cons of globalization and increasing economic interconnectedness. His refusal to act as a cheerleader for globalization earned the enmity of many in the mainstream.

As Taleb told me, “The great danger has always been too much connectivity.” Proliferating global networks, both physical and virtual, inevitably incorporate more fat-tail risks into a more interdependent and “fragile” system: not only risks such as pathogens but also computer viruses, or the hacking of information networks, or reckless budgetary management by financial institutions or state governments, or spectacular acts of terror. Any negative event along these lines can create a rolling, widening collapse – a true black swan – in the same way that the failure of a single transformer can collapse an electricity grid.

Now, everybody and their mother – including many of these same mainstream voices – is questioning the wisdom of outsourcing so much of the supply chain to China.



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