Ten Principles for a Black Swan-Proof World, by Nassim Nicholas Taleb

B.t.w., one of my take-aways from this economic implosion is, we all need to work harder to understand what's being done to us. "Trust but verify": another Reaganism that never made sense to me (how is trust different from distrust, if you have to verify either way?). Instead, I'd say, trust where you have nothing to lose; but don't where you do, esp. where someone else has something to gain.

Here (emphasis supplied):

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest. 2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and risk-bearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the government. This is surreal. 3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean. 4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative.” Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards. 5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious. 6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists. 7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them. 8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab. 9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control). 10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties. Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news. In other words, a place more resistant to black swans.

The writer is a veteran trader, a distinguished professor at New York University’s Polytechnic Institute and the author of The Black Swan: The Impact of the Highly Improbable.

Heads Up, Obamaniacs:

Long experience has established:

Knowledge is power. -- Francis Bacon (http://testserver.semantic-mediawiki.org/wiki/Knowledge... )

"Power corrupts; absolute power corrupts absolutely." -- John Emerich Edward Dalberg-Acton (http://en.wikipedia.org/wiki/John_Dalberg-Acton,_1st_Ba... )

Don't leave the foxes to guard the hen house -- (http://en.wikiquote.org/wiki/Hebraic_proverbs )

"The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized." -- (http://en.wikipedia.org/wiki/Probable_cause ). As Wikipedia further explains, "{The Fourth Amendment} was ratified as a response to the abuse of the writ of assistance, which is a type of general search warrant, in the American Revolution. The amendment specifically requires search and arrest warrants be judicially sanctioned and supported by probable cause. Search and arrest should be limited in scope according to specific information supplied to the issuing court, usually by a law enforcement officer, who has sworn by it."

Since our nation was founded, these principles have been violated many times, only to be abused. Please provide a list, anyone (sources/authority appreicated)??? of instances in which such abuse turned out to have been worth it? Because I am not aware of one single instance.

On the other hand, I am aware of many instances in which the violation of these principles was abused, to all our detriment and shame.

As Franklin said, "They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." (http://en.wikiquote.org/wiki/Benjamin_Franklin )

I don't care who's violating my fundamental rights; it's unacceptable and I will do all I can to fight it. We were meant to be a government "of laws, not of men." (http://www.bartleby.com/73/991.html )

I want my f'ing rights back.

The enemy is not Republicans, or terrorists, or etc. As Pogo said, "We have met the enemy, and he is US." (http://www.igopogo.com/we_have_met.htm )

Miss USA Visits Gitmo

. . . together with Ms. Universe, who wrote in her blog that the water in the bay was "sooo beautiful" and the camp was "very interesting." Details at UPI.

The Yes Men

. . . publish their own New York Times:

A Modest Proposal Re- Dating Conventions and Kitty Butts

Soon we'll have semantic computing and even good image search capabilities, but personally I think it'll be a while before they can beat an organizationally-inclined brain.

I find it helpful to include dates in some of my file names; e.g., I identify some files of photos using geographical location and date (in case I went to a location more than once). E.g., marfa04.

So . . . if you date items using the English conventional dating system -- e.g., 3/31/09 for March 31, 2009 -- all listed March files from whatever year will be clumped together -- not helpful.

If you date them using the European conventional system -- 31/3/09 -- the results are even more cockeyed (although the European has always seemed more logical to me otherwise).

However, if we adopt a convention of year/month/date, all files are listed in chron order. That's how I've begun dating my files. And I suggest we use a four-digit year -- it's worth it in the long run.

The pic has nothing to do with this proposal -- just something to rev up the post; you can see the whole of Rupaul's new music video here.

More Insight into the Economic Crisis

and our gummint's putative efforts to fix it -- just a taste of what I'm trying hard not to feel sick with rage about this morning. (Emphasis {bolding} supplied in all instances.)

From Buzzflash 3/30/09, citing economist Jeffrey Sachs, WaPo, and The New York Post (much more at the foregoing link):

The banks have zeroed in on Geithner's cash giveaway bonanza, the "Public Private Investment Partnership" (PPIP) . . . . As expected, Bank of America and Citigroup have angled their way to the front of the herd, thrusting their pig-heads into the public trough and extracting whatever morsels they can find amid a din of gurgling and sucking sounds. . . .

"As Treasury Secretary Tim Geithner orchestrated a plan to help the nation's largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post...

"But the banks' purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders. Alt-A and option ARM loans have widely been seen as the next mortgage type to see increases in defaults.

"One Wall Street trader told The Post that what's been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay."

. . . . Thus begins the next taxpayer-subsidized feeding frenzy featuring all the usual suspects. The race is on to vacuum up as much toxic mortgage paper as possible so it can be dumped on Uncle Sam at a hefty profit. Nice. These are the same miscreants the Obama Administration is so dead-set on rescuing. It's crazy to help people who use the cover of a financial crisis to fatten their own bottom line. Let them sink and be done with it.

From Geopolitics-Geoeconomics, 3/30/09 (more at the link):

What Geithner does not want the public to understand, his ‘dirty little secret’ is that the repeal of Glass-Steagall and the passage of the Commodity Futures Modernization Act in 2000 allowed the creation of a tiny handful of banks that would virtually monopolize key parts of the global ‘off-balance sheet’ or Over-The-Counter derivatives issuance.

Today five US banks according to data in the just-released Federal Office of Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activity, hold 96% of all US bank derivatives positions in terms of nominal values, and an eye-popping 81% of the total net credit risk exposure in event of default. [The five are, in order of decreasing magnitude, JPMorgan Chase, Bank of America, Citibank, Goldman Sachs, and the merged Wells Fargo-Wachovia Bank.] . . .

The Government bailout of AIG to over $180 billion to date has primarily gone to pay off AIG’s Credit Default Swap obligations to counterparty gamblers Goldman Sachs, Citibank, JP Morgan Chase, Bank of America, the banks who believe they are ‘too big to fail.’ In effect, these five institutions today believe they are so large that they can dictate the policy of the Federal Government. Some have called it a bankers’ coup d’etat. It definitely is not healthy.

This is Geithner’s and Wall Street’s Dirty Little Secret that they desperately try to hide because it would focus voter attention on real solutions. The Federal Government has long had laws in place to deal with insolvent banks. The FDIC places the bank into receivership, its assets and liabilities are sorted out by independent audit. The irresponsible management is purged, stockholders lose and the purged bank is eventually split into smaller units and when healthy, sold to the public. The power of the five mega banks to blackmail the entire nation would thereby be cut down to size. . . .

This is what Wall Street and Geithner are frantically trying to prevent.

From Rolling Stone, 3/19/09 (much more at the link):

The global economic crisis isn't about money - it's about power. . . .

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

From NYT, 3/29/09 (more at the link):

Mercy James thought she had lost her rental property here to foreclosure. A date for a sheriff’s sale had been set, and notices about the foreclosure process were piling up in her mailbox.

Ms. James had the tenants move out, and soon her white house at the corner of Thomas and Maple Streets fell into the hands of looters and vandals, and then, into disrepair. Dejected and broke, Ms. James said she salvaged but a lesson from her loss.

So imagine her surprise when the City of South Bend contacted her recently, demanding that she resume maintenance on the property. The sheriff’s sale had been canceled at the last minute, leaving the property title — and a world of trouble — in her name.

“I thought, ‘What kind of game is this?’ ” Ms. James, 41, said while picking at trash at the house, now so worthless the city plans to demolish it — another bill for which she will be liable.

From Information Clearing House, 3/30/09, citing The Wall Street Journal and WaPo (much more at the link): "If Obama is serious about restoring confidence in the markets, he should replace current SEC chief Mary Schapiro with Eliot Spitzer." If Obama were serious, that is.

The lesson to me is, we ALL need to start working a lot harder to understand what's being done to us.

A Few Items from the Current DU T-Shirt Contest

(here) ("DU" = democraticunderground.com):

CALL CONGRESS!!! RIGHT @#$%&-ING NOW!!!

Nice post, Freeper.
[I mean . . . that's my entry.]

Also:
Something about narwhals. Maybe something like "NARWHALS RRRRAAAAAWWWWWWRRRRRR."

'What's that?' (pic of DU/brain). 'That's the brain cells you're saving with DU.'

Democratic Underground: Where Stoners and Gun Nuts Coexist Happily (most of the time).

Girls, Guns, Gays, and Government Spies -- all at DU.

Republicans: Bugs on the Windshield of Progress.

Democratic Underground: The Letters in Our Name Can Be Rearranged to Spell, 'Red Ground - A Comedic Turn.'

We're Democrats Because the Letters in 'Republican Party' Can Be Rearranged to Spell, 'Prepay Lubricant.'

PAUL KURGMAN [sic] IS A PASTY [followed by pic of a pastRy].

DU: Casting Asparagus on Morans Since 2001

DU: Where Sinners Post Logic

DU: We've Told You So Since 2001

DU: Now with Even More Democracy!

DU: You probably Won't Like Our Hair

DU: You Can't Not Look at It

Peace: Not just for Hippies Anymore

My mother spends all her time on Democratic Underground . . . and all I get is this crappy t-shirt.

DU: Because You Can Handle Reality.

We Come to Bury Conservative Idiots, Not to Praise Them.

The truth awaits you.

New Robot with Biological Brain

Per Seed,

"Life [for Kevin] Warwick’s new robot began when his team at the University of Reading spread rat neurons onto an array of electrodes. After about 20 minutes, the neurons began to form connections with one another. 'It’s an innate response of the neurons,' says Warwick, 'they try to link up and start communicating.'

"For the next week the team fed the developing brain a liquid containing nutrients and minerals. And once the neurons established a network sufficiently capable of responding to electrical inputs from the electrode array, they connected the newly formed brain to a simple robot body consisting of two wheels and a sonar sensor.

(snip)

"At first, the young robot spent a lot of time crashing into things. But after a few weeks of practice, its performance began to improve as the connections between the active neurons in its brain strengthened."