Monday, March 11, 2013

A Little More On the Very Complex Financial System

I have finished a first reading of Nassim Taleb's latest book, Antifragile.  It's not an easy read, and it does not tell me what to do in the world of investing, but it's quite thought-provoking. is running today an opinion piece that is more accessible than Antifragile, and is along the same lines.  It argues for more transparency and simplicity in the financial "system".  It's a good read (LINK).  Hint:  the title about embracing complexity is misleading.  Here's a core paragraph:

Complexity also helps financial institutions hide the risks they create. Despite the advertising of the International Swaps and Derivatives Association and others who create and sell derivatives, these products are only sometimes used for hedging and much more frequently for speculation. In the latter case, they are exceedingly useful in obscuring information that would be crucial to the proper judgment of values and risks. Consider the derivatives that helped Italy’s Banca Monte dei Paschi di Siena SpA hide hundreds of millions of dollars in losses as it sought a taxpayer bailout. Anyone making deals with a bank enmeshed in a largely invisible web of contracts with far-flung counterparties does so with a very incomplete view of the risks involved. 
We simply do not know what risks we are, or are not, taking with our investments these days.

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