The Black Swan Guy Suggests Risk Controls

Nassim Nicholas Taleb is one of the few financial types to come out of the past year and a half looking like a genius. So, of course, when he talks, people listen. Fortunately, these ten principles make a lot of sense. If they only served as talking points, they would be excellent contributions to the conversation. However, they have the advantage of being fraught with common sense as well as informed insight. They are well worth the visit.
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Ten principles for a Black Swan-proof world
By Nassim Nicholas Taleb
Published: April 7 2009 20:02 | Last updated: April 7 2009 20:02
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.

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