Taleb calls the stock market and private equity Ponzi-like

Posted Apr 15th 2009 3:40PM by Zac Bissonnette
Filed under: Television, Scandals

Bestselling author and financial markets guru Nassim Nichola Taleb has a novel idea: Try to make the US economy as different from Bernie Madoff as we can.

Speaking on Bloomberg Television, Taleb said that "We want economic life to be organized to be as distant from that Madoff model as we can." The private equity industry is Ponzi-like because "you rely on new investors to pay off the other ones," Taleb said. "The stock market has some mild Ponzi characteristics. We have to make sure that innocent people are not harmed by this Ponzi-attribute."

Ah. Well that's the role of the SEC, right? Wrong.

"Regulators are fundamentally dumb," Taleb added. "Traders will go around them. I want the system where regulators can be stupid without you and I being harmed by it."

If we're going to try to move away from the Madoff model of economic policy, there are quite a few places we could start, but this one's my favorite: The United States government is buying cars from General Motors (NYSE: GM) to help the company demonstrate viability and secure more government loans.

Or we could take the principled stance and admit that what Madoff is doing isn't different from what Wall Street and the government dose everyday with little fanfare -- and let him get back to work.

Tags: Black Swan, BlackSwan, Bloomberg, Taleb

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Reader Comments (Page 1 of 1)

4-15-2009 @ 4:51PM

thedude said...

Please ! Give me a break ! the stock market is nothing like what Madoff did.

what Madoff did essentially was to take $1000 from 2 people, declare each persons investment was worth $1200 and pay himself $500 for that statement.

Stock in a company is based on a tangible value of the company, some people are willing to pay more for that stock and others are willing to sell for as much as they can. Yes there are concrete factors that can be applied to determine the actual value of a stock but then there are certain intangibles that may cause the price to rise or fall based on traders assumptions

The people he calls "innocent" I call stupid. As long as there is a human factor and greed "innocent/stupid people will continue to be preyed upon. You want to protect them from the market ? Then keep them from investing in any way whatsoever.

You could even regulate stock price based on yearly earnings, set the price once a year have 1 week where all the stock would get bought and sold at the regulated price and freeze the holdings until the following year when new earnings were announced and the stock was revalued. Even with a controlled system like that stupid people could still make huge mistakes and lose their shirt. These are the people who would by into the proverbial "buggy whip" company at it's highest price the year before sales collapse and the company goes out of business. For someone to make money someone somewhere has to lose money and quite frankly as far as I am concerned as long as I am making money I could care less about the saps losing money. For me, Greed does work.