Common Sense from Nassim Taleb

CNBC reports on an interview it had Wednesday morning with the author of "The Black Swan", Nassim Nicholas Taleb, Ph.D. Here is the text of CNBC's summary of the interview in its entirety:

The Obama administration's attempts to fight the financial crisis with more cash is like treating a bad tooth with Novocain instead of a root canal, Nassim Taleb, author of "The Black Swan," told CNBC Wednesday.

The main problem is the level of debt, and Taleb compared the authorities' efforts with those of a not very skilled pilot who is trying to land a Concorde on a narrow strip, between an ocean of deflation and a mountain of hyperinflation.

"These people failed us, they're going to fail us again," Taleb told "Squawk Box."

"They tell the banks to lend more but have less leverage," and expect people to go out and consume while unemployment is rising, he added.

"The way to restart everything is restructuring, conversion of debt into equity, convince people that debt is not good," Taleb said.

"Do not delay a root canal," he added. "Don't do piecemeal solutions to a problem that is fundamental."

"The solution is there, convert debt to equity. Usually it happens with Chapter 11, let's do it faster, and across the board," Taleb said.

Dr. Taleb is my number one man in this crisis. One reason is that he looks at matters in a system-wide fashion.
No one knows whether the recession/depression/banana will end this month, next quarter, etc., and no one really needs to know. How does the long-term value of, for example, IBM or McDonald's, or a medical technology company, change if the abstraction called the "economy" bottoms in one quarter or another?

What really matters is risk-reward, which Taleb has been top-notch at.

There's no doubt at Econblog Review that the U. S. needs to move to equity rather than debt. Piling debt upon debt will fail. When? No one knows. But it will fail. Is the President or Congress listening to this advice? No.

More's the pity.

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