Wednesday, August 24, 2011

'Black Swan' Author Taleb: Banks Have Hijacked Society

“The Black Swan” author and economist Nassim Taleb says that repeated bailouts have made it possible for banks to hijack society.

"The bad news is not another recession, it's not figuring what got us here and continuing to make the same mistakes," Taleb tells the BBC.

Taleb says there's a tumor in the center of the financial system that has not been removed, one he calls "an agency problem." This happens when people make money they receive bonuses, but when they lose money, taxpayers and future generations pay the price.

"The core of the problem is that asymmetry in payoff socializing losses and privatizing gain and the generator of that inequity is still there, worse than ever."

(Banks) got us here, and they’re reaping the benefits,” says Taleb. “As an industry, they have not suffered” and the Federal Reserve is “doing everything it can to finance these bonuses.”

“I’m outraged. Banks should be something other than machines that generate themselves bonuses. Today, banks are vastly more centralized than they were before the crisis … much more powerful than they were before (and) they have an incredibly sneaky lobby in Washington.”

Morgan Stanley Asia non-executive chairman Stephen Roach says debt forgiveness by banks should be a part of economic rebalancing.

"If you come up with ways to forgive the excesses of mortgage, installment and revolving credit as was done in the 1930s, that will help consumers get through the pain of balance deleveraging sooner rather than later," Roach tells CNBC.

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