Нассим Талеб - The Black Swan. The Impact of the Highly Improbable

In a Ponzi scheme (the most famous being the one perpetrated by Bernard Madoff), a person borrows or takes funds from a new investor to repay an existing investor trying to exit the investment.

Cascading rumors are a product of complex systems. Governments cannot stop the rumors. Simply, we need to be in a position to shrug off rumors, be robust to 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’s denial. The debt crisis is not a temporary problem, it’s a structural one. We need rehab.

9. Citizens should not depend on financial assets as a repository of value and should not rely on fallible “expert” advice for their retirement .

Economic life should be definancialized. We should learn not to use markets as warehouses of value: they do not harbor the certainties that normal citizens can require, in spite of “expert” opinions. Investments should be for entertainment. Citizens should experience anxiety from their own businesses (which they control), not from their investments (which they do not control).

10. Make an omelet with the broken eggs .

Finally, the crisis of 2008 was not a problem to fix with makeshift repairs, any more than a boat with a rotten hull can be fixed with ad hoc patches. We need to rebuild the new hull with new (stronger) material; we will have to remake the system before it does so itself. Let us move voluntarily into a robust economy by helping what needs to be broken break on its own, converting debt into equity, marginalizing 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 (by claiming restitution of the funds paid to, say, Robert Rubin or banksters whose wealth has been subsidized by taxpaying schoolteachers), and teaching people to navigate a world with fewer certainties.

Then we will see an economic life closer to our biological environment: smaller firms, a richer ecology, no speculative leverage—a world in which entrepreneurs, not bankers, take the risks, and in which companies are born and die every day without making the news.

After this foray into business economics, let us now move to something less vulgar.

* This passage was published as an editorial in 2009 in the Financial Times . Some editor—who no doubt had not read The Black Swan —changed my “Black-Swan-robust” into “Black-Swan-proof.” There is no such thing as Black Swan proof, but robust is good enough.

IX

AMOR FATI: HOW TO BECOME INDESTRUCTIBLE

And now, reader, time to part again.

I am in Amioun, the village of my ancestors. Sixteen out of sixteen great-great-grandparents, eight out of eight great-grandparents, and four out of four grandparents are buried in the area, almost all within a four-mile radius. Not counting the great-uncles, cousins, and other relatives. They are all resting in cemeteries in the middle of groves of olive trees in the Koura valley at the base of Mount Lebanon, which rises so dramatically that you can see the snow above you only twenty miles away.

Today, at dusk, I went to St. Sergius, locally called Mar Sarkis, from the Aramaic, the cemetery of my side of the family, to say hello to my father and my uncle Dédé, who so much disliked my sloppy dressing during my rioting days. I am sure Dédé is still offended with me; the last time he saw me in Paris he calmly dropped that I was dressed like an Australian: so the real reason for my visit to the cemetery was more self-serving. I wanted to prepare myself for where I will go next.

This is my plan B. I kept looking at the position of my own grave. A Black Swan cannot so easily destroy a man who has an idea of his final destination.

I felt robust.

* * *

I am carrying Seneca on all my travels, in the original, as I relearned Latin—reading him in English, that language desecrated by economists and the bureaucrats of the Federal Reserve Bank of the United States, did not feel right. Not on this occasion. It would be equivalent to reading Yeats in Swahili.

Seneca was the great teacher and practitioner of Stoicism, who transformed Greek-Phoenician Stoicism from metaphysical and theoretical discourse into a practical and moral program of living, a way to reach the summum bonum , an untranslatable expression depicting a life of supreme moral qualities, as perceived by the Romans. But, even apart from this unreachable aim, he has practical advice, perhaps the only advice I can see transfer from words to practice. Seneca is the one who (with some help from Cicero) taught Montaigne that to philosophize is to learn how to die . Seneca is the one who taught Nietzsche the amor fati , “love fate,” which prompted Nietzsche to just shrug and ignore adversity, mistreatment by his critics, and his disease, to the point of being bored by them.

For Seneca, Stoicism is about dealing with loss, and finding ways to overcome our loss aversion—how to become less dependent on what you have. Recall the “prospect theory” of Danny Kahneman and his colleagues: if I gave you a nice house and a Lamborghini, put a million dollars in your bank account, and provided you with a social network, then, a few months later, took everything away, you would be much worse off than if nothing had happened in the first place.

Seneca’s credibility as a moral philosopher (to me) came from the fact that, unlike other philosophers, he did not denigrate the value of wealth, ownership, and property because he was poor. Seneca was said to be one of the wealthiest men of his day. He just made himself ready to lose everything every day. Every day. Although his detractors claim that in real life he was not the Stoic sage he claimed to be, mainly on account of his habit of seducing married women (with non-Stoic husbands), he came quite close to it. A powerful man, he just had many detractors—and, if he fell short of his Stoic ideal, he came much closer to it than his contemporaries. And, just as it is harder to have good qualities when one is rich than when one is poor, it is harder to be a Stoic when one is wealthy, powerful, and respected than when one is destitute, miserable, and lonely.

Nihil Perditi

In Seneca’s Epistle IX, Stilbo’s country was captured by Demetrius, called the Sacker of Cities. Stilbo’s children and his wife were killed. Stilbo was asked what his losses were. Nihil perditi , I have lost nothing, he answered. Omnia mea mecum sunt! My goods are all with me. The man had reached the Stoic self-sufficiency, the robustness to adverse events, called apatheia in Stoic jargon. In other words, nothing that might be taken from him did he consider to be a good .

Which includes one’s own life. Seneca’s readiness to lose everything extended to his own life. Suspected of partaking in a conspiracy, he was asked by the emperor Nero to commit suicide. The record says that he executed his own suicide in an exemplary way, unperturbed, as if he had prepared for it every day.

Seneca ended his essays (written in the epistolary form) with vale , often mistranslated as “farewell.” It has the same root as “value” and “valor” and means both “be strong (i.e., robust)” and “be worthy.” Vale .

NOTES BEHIND THE CURTAIN: ADDITIONAL NOTES, TECHNICAL COMMENTS, REFERENCES, AND READING RECOMMENDATIONS

I separate topics thematically; so general references will mostly be found in the chapter in which they first occur. I prefer to use a logical sequence here rather than stick to chapter division.