Save capitalism from the banks – Nassim Taleb

January 30, 2009

Black Swan

Nassim Nicholas Taleb,  the author of  “The Black Swan: The Impact of the Highly Improbable”, has a simple proposal to as he puts it, “save capitalism and free markets from the banks.”

Nationalise the banks, limit the rewards to those who work in what he calls the “utility” part of the system and have a completely uninsured second leg that can take all the risks it wants and lose its shirt, he said in an interview in Davos at the World Economic Forum.

“They rigged the game. We pay them for their profits, there is no clawback so their incentive is to hide the risk they are taking.”

“Which is why eventually as someone who loves free markets,  a total nationalisation of the part of the business that requires insurance and does clearing and payments needs to happen.”

“I am angry with U.S. policy. What we had is exactly the opposite of socialism, they got TARP to pay their bonuses and to take more risk.”

He describes his plan as Capitalism 2.0. It would have a barbell structure, with the insured utility-like part on one end and the free market bit with privatized risk on the other.

He describes banking bonuses as asymmetric because the banker gets the upside but does not share in the liability which ultimately may be funded by taxpayers, as we have seen.

Taleb, who as you may have noticed doesn’t mince words, is no fan of private equity.

“Private equity has absolutely no reason to exist. The private equity holder has all the upside and the banks all the downside.” He’d have no objection to a system where private equity funds itself via hedge funds, so long as neither party had any recourse to government insurance.

And a bit like an Old Testament prophet, Taleb is angry and wants those he thinks are responsible to suffer.

“I want them poor and they deserve to be poor.You can’t have capitalism without punishment.”

Oh, and another thing, he wants Bob Rubin, who trousered millions while chairman of Citigroup, to cough up.

“I want Bob Rubin to return his $110 million dollars to the American taxpayer.”

James Saft is a Reuters columnist. The opinions expressed are his own.

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Totally agree,
simple and effective

Posted by giovanni dellepiane | Report as abusive

Thank you James Saft and Nassim Taleb for your views, but I rather doubt that the US is going to nationalize the banks.

Instead I believe that the issue of massive regulatory failure needs to be addressed much more explicitly. I am a former bank regulator (a Director of Research of the New York State Banking Dept.) and I have spent many years in the investment banking world involved in risk management, risk reporting and risk technology. Lately there have been several proposals for revising the regulatory process, including establishing a clearing house for credit-default swaps. consolidating regulators, new reporting requirements, etc. But there seems to be a failure to recognize that the regulatory process can only work if there are good regulatory people looking at the matters every day. If I may let me offer the following comments:

1. The bank regulators have had the authority to examine any aspect of a bank’s activities. They had the authority to figure out what was going on at the banks and to limit it. The regulators did nothing. So all the new regulations on paper will mean nothing if the regulators cannot or will not do their jobs.

2. Mr. Timothy Geithner recently said “First, the multitude of overlapping regulators must be rationalized into a coherent few, the communication between them improved and their turf battles ended”. Unfortunately consolidating the regulators will produce some streamlining but will not likely achieve the desired goals. Sending a regulator who makes $50,000 dollars a year to examine the activities of sophisticated financial traders who make millions of dollars a year is not a fair battle. And if you have ever worked in a government agency, as I did for over 4 1/2 years, you will be intimately familiar with the viciousness of the turf battles among the senior officials. There is a lot of deadwood at the top of the agencies and it needs to be cleaned out. A Herculean task if there ever was one.

Posted by S. Hellinger | Report as abusive


Posted by TONI | Report as abusive

Taleb has it right and he used a good forum to address the issues. Now Washington needs to pay attention.

Posted by Don | Report as abusive

GREAT MESSAGE. Needs a little polishing and some tweeking, but good on the risk division. Changing them to a utility like clearing house still needs capital and managers. We can not afford another Postal Service type entity
Good thoughts

Posted by Dean | Report as abusive

Absolute right on the nail!! And not only Bob Rubin but each and every one of the bankers who have got us into this mess should be made to pay back all the bonuses they received whilst doing so.

Posted by Adrian Head | Report as abusive

Right on! All those thieves should be forced to give back the money they earned under false pretenses. THEY should be funding the bank bailouts, not the taxpayer, since it’s their inepitude and hubris that led to this financial crisis.

Posted by Helen Highwater | Report as abusive

Sounds fair to me.

Posted by jimbo | Report as abusive

i agree with Mr Saft..down the rabbit hole with these crafty bankers and wall street moguls..they knew the world was getting sold out..and they laughed bec they wld profit from the chaos..and HAVE..good, put these smoothies into a min sec jail until they pay back their ill gotten gain..some 1 steals a bottle of wine and gets caught and is in jail for 30 days..these moguls stole millions., and walk free ev day and all laugh abt it..while vacationing on their yachts in the Bahamas..spineless gov`ts..will do 0 abt this except posture and rant..thats all we get as a solution..the solution is 0 solution..the taxpayers will get screwed here..just wait and c..

Posted by jeff | Report as abusive

Taleb for US Treasury Sec.

’nuff said

Posted by Red | Report as abusive

Even worse, it’s not only todays tax payer, but future generations tax payers are asked to pick up part of the mess. I am already sorry for my childrens tax rate, today.

It may be unthinkable today, but what if at some point markets loose faith even in government debt? Will investors ask for covenants or collateral, say in terms of territory, in government bonds?

Posted by Joe P. | Report as abusive

Taleb tells it like it is..

As an Australian I waiting for the real problems to start here. You think the US had a housing bubble, ours is huge, prices in some areas have tripled in 5 years. To give you an example Adelaide pop 1million with average annual income of $55,000 median house prices are $450,000. Yep thats 9ish times annual income, our historical average is 5ish times annual income.

I wish I could get Taleb to comment on Australias looming crisis. It may stop our elected officials claiming there is no bubble here.

You had Alan Greenspan, we have Wayne Swan “there is no housing bubble in Australia”. Whats even worse our government is encouraging first home owners into this market at its peak by using a $25,000 first home owners gift using tax payers money. I have a feeling our government is priming our own sub prime crisis.

Posted by RiskMangerDrew | Report as abusive

I echo pretty much what everyone else is feeling about the current state of the economy, dishonest banks & bankers, wall street and the crooked CEO’s who run it, along with the extortion (bonus’s & salary’s) money they take from it. Funny thing, the bank CEO’s were allowed to squander billions. I for one as a tax payer,would pay several million more to see some of these crooks prosecuted. Food for thought…I wonder if there is even one bank president anywhere,that would allow one of their tellers to hand out money on a daily basis without any accountability what so ever, I think not. I’m one of the people who has always believed that to much government involvement, oversight, meddling, etc, is not a good thing. But in the case of banking and wall street communities, it is desperately needed.

Posted by Wes Wynn | Report as abusive

Exactly! The only reason these bankers take such ridiculous risks with our money is that they know they stand to make obscene profits in the form of bonuses which they can never lose. Most of us know that if we gamble we stand to lose everything. Why shouldn’t they be made to repay not only their bonuses, but some of their previous “wins” instead of asking us to foot the bill for their stupidity and GREED!

Posted by Brian | Report as abusive

Please continue. This is a solution.

As a child, I was taught Banks have the privilege to have “Bank” in their name and on their building with the promise that they will only take deposits and loan prudently while paying interest on deposits.

I am in favor of ending the US Fed. Why do taxpayers pay interest on money the US Fed creates? Study history. By fractional reserve (think of a $1 deposit lent out 10X, only the US Fed gets to create the $1 too!).

Most banks received and lent money prudently. They may survive.

Imprudent banks (big or otherwise) fail. Let them fail. No gain = No bonus.

I strongly agree with Saft’s report and most of the great comments to date. Thank you folks. We can return to our constitutional roots.

Posted by skinner | Report as abusive

Further to my comments here in Australia.

As the international market for MBS (mortgage backed securities) has effectively shut. Who has become the only buyer with $4 billion committed so far, you guessed it the Australian government (tax payer).

We desparately need some comments from respected international economists on the state of Australias housing market. Currently there is only one lone voice of Prof. Steve Keen from the UNSW. In the wider community the belief of its “as safe as houses” is alive and well. A recent survey of Australians showed 70% believe house prices will rise this year even though our economy is going to fall into recession.

Please Reuters can you help provide an expert opinion from someone like Taleb.

Posted by RiskMangerDrew | Report as abusive

Excellent starting point for fundamental change. Throughout the various banking scandals of the past 25 years banks have proven that they are not to trusted and an altrnative to the structure of banks we now have is required. This is scheme certainly worth consideration. Afetrall, what we now have isn’t working.

Posted by RFL | Report as abusive

He is absolutely right, but it’s too late to fix it, sorry. Democracy is morally bankrupt and now there is no way to restore that trust.
In the end, the banks won. They have proved, once and for all, that men cannot govern itself – just look at this result.

Posted by Robynne | Report as abusive

I agree 100%! But this won´t ever happen becouse the private bankers(FED)have the final say in US politics.FED can simply print it´s own money to pribe politicians. How much money can you print?
They will never let us move to system that deprives them of control and profits.

Posted by tom | Report as abusive

“Exactly! The only reason these bankers take such ridiculous risks with our money is that they know they stand to make obscene profits in the form of bonuses which they can never lose. Most of us know that if we gamble we stand to lose everything. Why shouldn’t they be made to repay not only their bonuses, but some of their previous “wins” instead of asking us to foot the bill for their stupidity and GREED!”

Excellent point! Bravo!

Posted by RFL | Report as abusive

Bravo! But I would not call his suggestion “Capitalism 2.0″ I would call it “Capitalism 101″! What we’ve been witnessing hasn’t been “Capitalism” at all, but a form of socialized welfare for the banks.

Posted by Maggie | Report as abusive

Mr Taleb’s anger at the bankers is misdirected — they acted in their self interest, just as anyone else in their position would have, and took advantage of what was made available to them. Blame Congress and regulators.
His suggestion to split the low risk banking business from the higher risk investing/speculating business is not new at all — it is precisely the conclusion reached and acted upon by Congress in 1933 when Glass Steagall was enacted.
The universal banks were split into two — insured banks that had the exclusive monopoly of taking other people’s money (deposits) and were restricted by law to making plain vanilla low risk/low return loans, and investment banks that were privately held partnerships left to gamble their own capital any way they wished (and guess what, when it was their own capital the gambles were a lot more conservative.
Starting in the 1980s and culminating in 1999 when Congress enacted Gramm Leach Bliley Act (which was necessary to allow the merger of Travelers and Citibank to form Citigroup)repealing Glass Steagall, the banks were allowed to play like investment banks and the investment banks became public and also played like banks.
Less than a decade after Congress undid the complex balancing that had worked relatively well for 60 years we find ourselves in exactly the same position we were in 1933– and Mr Taleb’s suggestion brings us full circle again.

Posted by doublea | Report as abusive

Great to see someone from Arabian and Greek roots,such as Taleb, come to surface with such insight. I hope he keeps getting heard loud and clear and in time we all have a chance to witness ideas get implemented.

The old days of the thieves in Wall Street, gloating over years and years of profits (robberies), has to come to an end. It’s shocking how we’re watching some of these CEO’s still in office, still sucking in bonuses.

The world has to take a strict hard stance and eliminate such irresponsible people and hold all future ones accountable from the get-go.

Posted by Ahmed | Report as abusive

I agree and I used to work at one of the problem i-banks. From this experience, I can say the people who work in these places are the most money grubbing people on the planet with zero regard for anything but their paycheck. They should be bought to task for the calamity they have created.

Posted by Paul | Report as abusive

Everyone is angry, and everyone wants those they think responsible to suffer.

There’s just one small problem: no two people can agree on who IS responsible!

But in the meantime… have you noticed how the equity markets, where these greedy bankers invest their nest eggs, have fallen by about twice as much as have the housing market where their victims invest theirs (at least here in the UK)? Isn’t the punishment already happening?

Posted by Ian Kemmish | Report as abusive

What a bunch of whiny babies. . . if you don’t want to subsidize profits or prop up banks with taxpayer dollars, then don’t. It is as simple as that. Let the market correct on their own.

Banks act in their own self interest. If they know they will be bailed out via monetary easing or some other method, they shouldn’t be blamed for additional risk taking.

It is the politicians who gave them the incentive to act irresponsibly. It is the policy that is irresponsible.

Posted by AG | Report as abusive

President Obama, please listen to Nassim Nicholas Taleb: “Nationalise the banks, limit the rewards to those who work in what he calls the “utility” part of the system and have a completely uninsured second leg that can take all the risks it wants and lose its shir”

President Obama, what you are doing now with the TARP, giving money to the banks, is worst than nationalization. Please punish the banks. Listen to Nassim and not to all those Rubin cronies in your economic team.

President Obama, nothing in your economic policies can be considered as BOLD. And you had promised BOLD changes??? Where are the bold changes?

Posted by ron_paulite | Report as abusive

Sounds interesting. However the author fails to explain where the ultimate risk takers will get their funding to make the risky investments. If they are going to attract funds from individuals, then they will be competing with the “Banking Utilities”. To compete they will have to offer much higher rates on uninsured funds. I can see the prospectus’ now. Just try to read one and determine that you are about to lose your life savings!

Posted by William Schneider | Report as abusive

Imagine I lend you $1, backed by $1 good, and I ask $1 million of interests in return. I would be printing money, fake money, ghost inexistent money. Today’s crisis come after people discovered they owned fake money produced by the private US banks.

Leaving private banks to exist is to privatize monetary policy. Today we know how privatized monetary policy works.

If private banks continue to exist, you leave a door open for the next crisis. Banks add value to money itself with interests, which is like printing a bill, backed on bills they have, not added value backed by goods. Colombian bill fakers are “criminals”. Instead, private bankers are “capitalists”. Both print money backed by existing money.

Nationalized banks would collect interests that would become government spending, so such newly printed interest money would be backed by the goods government would buy with that money.

Read and learn about how monetary system works.

Posted by Pablo | Report as abusive

As a retired banker I have watched the excesses of the banking industry with disgust for more than 10 years. Vanilla banking is a simple business which has been grossly distorted by a multitude of scoundrels who no longer understand the basics.

The proposal put forward by Taleb probably needs some refinement to make it work in a globalised world, but it is certainly the way forward to make sure that we do not see a repeat of 1930 and 2008.

Posted by anton kleinschmidt | Report as abusive

When are we going to demand that the perps of this massive criminal enterprise be jailed and their property and assets confiscated by the USG to repair some of the damage they caused? Jail time and restitution has to be part of any solution/bailout. It’s called “Accountability”. Chris Dodd and Angelo Mozillo would make great cell mates…

Posted by RFL | Report as abusive

Here is an alternative approach. Don’t nationalize the banks. Bail out the debtors instead of the lenders. Take over the loans at a discount from the banks so that they get them off their books. Make the banks pay a restitution tax for however long it takes to pay back the taxpayer. Make an example of the most egregious conflict of interest cases (remember the quaint concept of fiduciary responsibility? That’s the only law we need.)

Although it is true that Glass-Steagal addressed a real problem (the danger of greed, conflict of interest and financial instability), it is also true that governments are notoriously bad at running things, especially when they create huge opportunities for bureaucratic fiefdoms which are also corrupted by conflicts of interest and runaway public finances.

There has to be a middle way. That middle way is founded on incentives and disincentives. Unfortunately the current system has eliminated most disincentives for self-serving corruption. That’s what we still have now and that is why the system is still collapsing.

We need to bring those who have enriched themselves by conflict of interest (malfeasance) to courts and prison where warranted. They certainly need to have their ill-gotten gains confiscated.

Posted by Jonathan Cole | Report as abusive

Nothing wrong with greed (properly channeled and monitored), it’s needed for innovation– how else to keep those guys glued to their desks seven days a week trying to come up with new and better ways to use our money to make themselves money.

However, it should have been regulators’ job to make sure that they only got paid when they came up with ideas and products that had some real value, like loans and deals that got repaid. Think of entreprenours, inventors, etc — they toil to make it rich, and if they succeed they deserve to make it, if not, they don’t.

That’s where regulators fell short — they allowed bankers to reap ridiculous phantom profits that were based on pure speculative and reckless gambles that had no real value, but did produce short term revenues that met incentive bonus plan targets (not suprising since they created them).

Restructure the incentives so that bankers toil to produce what we want them to — efficient allocation of credit– and demand that regulators monitor and verify.

If they do that, they will see that it’s a lot harder to make the huge margins and profits, and likewise the huge bonuses. Maybe a lot of those bankers will decide to chase the big bucks elsewhere, so long as it’s not using other people’s money.

Posted by doublea | Report as abusive

Mr. Taleb has it right.

Posted by Andrew Franks | Report as abusive

At this point, I totally agree with Mr. Taleb…It seems like a very good idea, or at least a start, unfortunately when these banks and corporations are receiving billions of dollars in Federal Aid and are doling out bonuses to their brokers, executives and management without thinking that the public and the government will start asking questions about where the money is actually going, is pretty preposterous. This economic crisis, in the U.S., is probably the most complex financial crisis in the world so far but there are good solutions out there. I think the housing sector has to be addressed immediately and credit needs to start flowing again to small businesses immediately and we need to spur job growth at all levels if we are going to dig ourselves out of this hole. We have lots of problems that need to be addressed, but all in all I think once we pull out of this recession we will all have learned a very valuable lesson from this crisis.

The banks, that have received federal injections, aren’t lending to the public, raising interest rates on consumer credit cards, because they have taken on too much risk in the housing industry and have suffered huge losses, which has collapsed in part due to reckless lending and reckless borrowing by the consumer and the bubble bursting ignorance. All of the toxic loans in the housing industry alone are still not accounted for in those billions and billions of dollars in losses. The banks have drastically increased the guidelines for credit to small business owners and to borrowers, creating a pinch. They have also gone back to very strict guidelines in regards to home purchases and refinances. I think it would be safe to go back to the conservative home loan style before the toxic Option ARM loans and Stated Income, No DOC loans came into being. 90%-95% LTV on home purchases, with full documentation and excellent credit scores…FHA still has some good first time home-buyer loan programs. The stated income loans are a thing of the past. Right now if you live in an area that is full of short sale homes or foreclosures, appraisers don’t have data to show value in a home, your home is only worth what the comparable sales in the last year are showing and if they are not showing value, people are stuck, but they did take on that risk when they bought their home; I just think no one wanted to think the inevitable could actually happen. So many people are upside down in their mortgages not because of reckless spending but because of others reckless spending, the burst of the bubble and the job losses across the board.

We have gotten ourselves into a bit of a problem, because now consumers are not spending because of the amount of job losses and foreclosures in the U.S. on a daily basis, resulting in even more job cuts at all levels. When we don’t spend, how can any company make a profit, unless they are strictly business to business oriented but even then when you’re reliant upon a client that is reliant upon a customer who is not spending, you’re b2b client is not going to spend either, they are going to scale back.

Unfortunately, a lot of people in the U.S. saw their house as a way to create a temporary state of wealth, borrowing up to and over 100% of their home’s value because values were rising at such an astronomical rate and had been for several years straight. When it collapsed they had nowhere to turn too, they didn’t spend conservatively and therefore had no reserves to rely upon when the big house started coming down. We all need to spend, it’s a part of life, but you also have to save at the same time and I don’t think the average American was doing that.

Posted by Damian Palmares | Report as abusive

I am writing from India and what these bankers have done have left countless people jobless in our country. We dont even have adequate security net to support them. What your bankers did have pushed just so many to the brink of survival all around the world.

These bankers need to be punished so that all those suffering can have some consolation. For those who say banks should not be nationalised should look at India. In our country the biggest banks are public and they have hardly been affected by the current crisis and they work excellently.

In my personal opinion banks should always be government owned. In America the elite will always shout against nationalisation as it strips them the chance to make money in another such bubble and again leave tens of millions suffering and even your media plays into hands of the rich.

And not only nationalise the bank but fire all the key people as these greedy monsters should not be given another chance to play with our fortunes and moreover their basic attitude can never change. It is also about the wrong kind of people in such a crucial position.

Mr. Obama please do as you have promised the world expects some kind of punishment against these criminals. Either you can pacify the rich like earlier Presidents or you have the guts to take them head on for the future good of people around the world.

Posted by asterix117 | Report as abusive

Totally agree with Mr taleb – such things should be punished and these bankers put in jail

Posted by Jane | Report as abusive

Well said asterix, a private owned bank can function and profit and not destroy, like it has, but it depends who is running it. They should be put in jail. We need to not fear the greedy elite and take them head on before this happens again, once we get out of this global economic situation we are in.

Posted by Damian Palmares | Report as abusive

Why punish the stock holders by nationalizing the banks? If they could come up with a feasible plan there would be more liquidity from more investors coming on board.

Posted by Mearsheimer | Report as abusive

I have no idea if anyone will spend the time to read and contemplate this, but oh well it will not be the first or last itme I was my breathe…so to speak. If noone is going to allow competeng currencies, we need to legalise Industrial/Medicenal Cannabis, as an autodetermining force in the relam of human economic, medical, spiritual affairs. Use the UN to remove the International ban so the commodity maybe traded, or continue to betray us. This single commodity can do more than silver or gold coinage, it is sustinance for humanity, and lays the basis for solidairty of the local market place by means of mutualism and barter, but competion is a sin, so whatever.

See you in the camps guys.

Posted by Mark Gionfriddo | Report as abusive

The American banking system needs a complete overhaul not only in terms of processes but also in terms of people if we want to avoid any such failure in future. And for those who say others would have behaved similarly should know that madness and greed for money vary from person to person and so does one’s own tolerance to do wrong things for personal benifits.

In US banking system greed became synomous with performance. The more greedy you are the more likely you are to end up in an investment bank. The entire system ran on show off and pretences, to prove that these fools are exclusive in their intelligence and talent. But everything has now proven out to be hollow. Just like empty can makes more noise.

Posted by asterix117 | Report as abusive

i’ve been saying these things for many many years…as a retired federal agent…we should also have a fixed non taxable interest rate at banks; say 7 or 8%, so that the majority can get a fair deal…then banks would be inundated with money to loan out and the sociopaths(wall street, big banks and our elected officials) will finally be stopped or better, continue gambling with their own money…it’s so obvious that the heretofore mentioned trio of gangsters are all in bed together which is why they constantly screw the public that pays their salaries…for life, including as in the military, free health care…the FED is a private UK entity, charging us to print our own money(4-7) per cent per annum…that’s why they stay in business, courtesy of the above trio and we get currently 1-2% on savings…their actions force us (the public retirement system) to rely on wall street, etc and etal to make a buck…one last comment on being in bed together…the trio, that is…they regularly meet to direct and profit from this cornucopian conspiracy…don’t believe me? do some reading and research……

Posted by raymond ratkowski | Report as abusive

TONI, you and Mr. Taleb are absolutely right. Those in corporate leadership positions who committed fraud and other unethical acts should be brought to task. The greater problem is how to make amends or mitigate the harm caused to so many Americans. At the same time we must also find the resources necessary (both human and monetary) to educate the next generation so they will be able to rebuild what they have inherited rather than complete it’s destruction.

Posted by Anubis | Report as abusive

Oh and by the way, let us not forget to find and remove the clowns in Washington who repealed so much common sense legislation that kept us out of such economic disasters for over 50 years.

Posted by Anubis | Report as abusive

Great Idea, Taleb. Now, HOW do we FORCE them to implement it? Here’s my idea. EVERYONE TAKE YOUR MONEY OUT OF BANKS and WALLSTREET NOW! Find a local credit union and put all your money there. AFAIK, credit unions have not been involved in these messes. Calling your representatives in congress has not worked because they are in bed with the banks. VOTE WITH YOUR MONEY. Only when money flows out of these institutions will congress and the banks get the picture. They have shown that they are determined to take us to the slaughter like willing lambs. We need to stop the insanity.

Posted by Maria | Report as abusive

I agree with this author, “capitalism” as an economic system (albeit in various forms) is separate from the “money” system (banking) which facilitates transactions. The current global crisis is not prima facie evidence for the failure of “capitalism,” as much as a failure of the current banking/transaction structure.

During my 23 year career as a bank examiner, I always felt that U.S. bank regulators were the equivalent to British “bobbies” with bicycles and night sticks. Some investment bankers/commerical bankers (a few) were akin to narco-terrorists.

Further, as the percentages of women in upper management increased (starting in the ’90s), the philosophic approach to bank regulation shifted from an attitude of law/regulation enforcement to consulting/nurturing in an effort to achieve compliance.

Despite the belief of many idealists on the Left, in the real world you don’t “nurture” narco-terrorist, or any terrorists.

I feel this point was well made by Iranian president Mahmoud Ahmadinejad last week. In response to Obama’s desire to “talk,” he used the moment to humiliate the U.S. president in front of the Islamic world, noting that “Western ideology has become passive” and the U.S. was weak.

Posted by Dan | Report as abusive

…and yes, I am disappointed in our President’s plans to give out more bail out money. I thought we finally had someone who realized that there is no going back and there is not maintaining the status quo. It didn’t work, things need to change, we need to go forward not backward. Taleb’s idea is perfect. If something is critical to the infrastructure of our country and the well-being of our people, it shouldn’t be left to market forces: Food, military, healthcare, energy, roads and basic communication.

Posted by Maria | Report as abusive

Exactly asterix

Posted by Damian Palmares | Report as abusive

The capitalist system has self destructed. Since, ethics, credibility, accountibility and morality were removed from the equation by the politicians and the establishment of big business, you can no longer save the system. The public need to rise and claim their countries back.

Posted by Sam Philip | Report as abusive

I have recently written a blog post on this topic myself – real risk is only going to jail, not keeping their money from past years, and retaining a pension until they die. Without real risks, the same thing will happen again.

My blog post is here –  /02/jail-the-bad-bankers-a-global-movem ent/

Many thanks,

Mark Turrell

Posted by Mark Turrell | Report as abusive

I agree with Mr. Taleb. Banks should be held responsible. Our future generations will shoulder this burden, so why shouldn’t the executives, their families, and future generations as well.

Posted by Wayward Ones | Report as abusive

Let’s not forget Moody and the investment rating services for their part in watching as cow dung was wrapped in Christmas paper and given a triple a rating. Congress played its part by monkeying with the insurance laws so that these investment vehicles could appear to be insured to investors. This is the biggest and most coordinated scam I’ve seen in my 63 years, and we would have to clear out a lot of prisons to make room for everyone involved in the fraud. Let’s just bring back the guillotine.

Posted by terence mcsweeney | Report as abusive

Off all the ideas I have seen floated around this looks like the best of them. A duel system as he proposes looks like it would do well to protect capitalism from society while protecting ppl like myself from Risk taking money types who have no problem leaving me to foot there failed bill.

Posted by eron | Report as abusive

I agree completely with your opinion about the banks.
All the economic and financial troubles of the last 1000 years or so, have been induced by the bankers and their banks!! Please check the banking-troubles of the USA for the last 100 years and you will see what I mean.
They are always greedy and always the first to deny guilt.
Ofcourse they mis-use the systems-in-place at any time, because anybody is their Friend when They need money for themselves.
It is not perse criminal but just greed-inducing opportunities. And bankers are the first to grab those. They are at the source of the Oils what greases the economies, but also the pockets of their main customers, the bankers themselves.
Have you ever met a poor Banker?

Putting the Bankers in a Straight Jackett or tight government control, will solve these problems.


Posted by Louis Schwaanhuyser | Report as abusive

This has been happening for thousands of years.
The Bible the Magna Carta and various other historical documents show mans attempts to control the banks.
The French even tried chopping off their heads but sadly nothing has worked.
The US itself was created because the English King wanted to tax the colonies so he could pay off the banks.
Whatever system is devised there will always be those who will manipulate it.

Posted by Allan Jeffreys | Report as abusive

The whole banking /regulatory debacle may be summed up as “The difference between Genius and Stupidity is that Genius has limits.”

Posted by mervyn gidman | Report as abusive

totaly agree with his comments. Why should they get the rewards of the “risk taking” of there buisiness when the people pay for there mistakes. After that the people has to pay once more threw there mortgages and every other service fee they pay.

This is absurd and totaly contrary to the basic capitalism ideals.

Posted by will | Report as abusive

There are countless people here in the US who are upset with the greedy crocodile capitalists on Wall Street and in the large financial institutions. In lieu of the death penalty (I favor the guilotine) a few years in the nick might set an example ‘pour encourager les autres’. ‘Beat them until they bleed and then beat them for bleeding’. We will have to build new prisons to house these miscreants. Wall Street has been a rigged game for years. Naked short selling, dishonest accounting firms, criminal collusion between brokerage houses and Bernie Madoff (50 billion dollars stolen – a new world’s record!) We live and learn.

Posted by Robespierre XIV | Report as abusive

“Problems cannot be solved by those who created them.” – Albert Einstein

It is good, very good, that outside wisdom, such as Dr Taleb, is now coming forward. Keep it up Dr Taleb. (By the way I am on my way finished your book The Black Swan.)

What the world DO NOT are more of those G7, G20, Davos and what’s not economic gatherings. These people has far too much self-interests to find credible solutions.

What is world need is more outside wisdom to propose visions, ideas, strategies for a next financial architecture – an architecture the works for the interests of the public.

Indeed the American mafia has not died with the death of Gotti after all. It has infiltrated deep into Wall Street, and turned banking into a racket. Send in the FBI to bust this cancer up for good.

Posted by TomK | Report as abusive

Nobody was complaining when the system was working…knowing the system was not good…Honesty is a good skill

Posted by blablabla | Report as abusive

While we wish to blame the bankers and various other crooks involved, from DC to the local elected that wasted money, did “special favors” etc… it might be time to examine those in the mirror. I can find VERY few in the financial “experts” of media or government that 24 months back would not have pillared any bank or WS firm for NOT making a good ROI, not meeting “analyst’s forecasts”, not Keeping up with others and rewarding their “brilliant C//’s” with huge bonus’s they earned as stock, ROI, etc hit record numbers. I cannot think of one money media mag, paper etc that did not kneel in worshipful adoration of the “great management teams” or C//’s that now have proven to be no more then incompetents and most likely corrupted. I do challange that latter a bit as wonder if any had brains enough to actually make money, or were simply caught up in the financial currents..
I can well remember so VERY MANY that howled in joy on the “Look at the ROI I am getting here, the house(s) I bought there with little of no down, etc etc”.. and they were made into media stars as only “warning” ever issued was “Get into the house and markets as they are going // percent up every day, be done with SS and let the funds go to the Market, let the employees invest for own futures as look what they are earning now etc”. There seemed to be ads everywhere on “ZERO DOWN, 1-3% APR, ARM’s start at 2%, interest only, get into stocks now, forget that stooges USA bonds, etc”. Yet NO ONE seems now to KNOW that ARM’s were going from 3% to 10% and all else.. NO ONE SAID A WORD..other then “Buy it today and flip it in six months, you can get a $400K home for $350 month etc”. I REPEAT NO ONE, Political, regulator, C//’s, auditors, economists, Bankers or WS, or any of the corrupted or terribly incompetents listed..or a combo of both. NO ONE SAID A WORD OF WARNING other the “Get in now as can only go up”
The NATION did just that as they were and are generally a “I want mine now as I deserve it” and most simply to uneducated by the failed USA “Let all pass as to fail hurts their delicate egos” systems to even compute compound interests. I am not just referring to HS, where fully 1/3 drop out, but to what has become for most a extended HS four year spree called “College”. Few took the tough hi tech, sci, eng etc, for two reasons, one it requires work, two they are not smart enough. and perhaps at third.. saw where a laid off WA MU kid started at 100K/year at age 26, now laid off.. so one might suggest to much paid to many for to little in the real knowledgeable contributions dept..
So now we pay, the party is over, and it seems China now “suffering” as their growth down to 7 or 8%. But China will be the new power, the west, the USA in particular no longer has the chutzpah, technically trained to be competitive in ANY area, nor the toughness or education we once had to compete at world levels. Note the “golden age” of USA was mostly created by the highest educated ever, those from WW2 on GI BILL.. So let’s not blame the bankers alone. We let the pols loose and as long as “paper not products” have value.. the party went on.
So now we pay for the seeds that were planted 40-50 years back. Then we taught the young, now 40-50, their parents that dodged the NAM and any other “service to the nation is a citizens duty for a couple of years”, instead taught “you can beat the systems as it is only for suckers” and that is what happened.. from the mortgage buyer to the WS, Political and Bankers,, they knew they could beat the systems.. and the citizens whom really do not have a clue about real “Capitalism” went along.. as the guy “Abner” said.. “we have met the enemy and they are us”.. and now it seems we captured ourselves?

Posted by chuck | Report as abusive

This is nothing new. Proposals to have one banking system that offers insured deposits with limited returns and a second system with unlimited returns and uninsured deposits are nothing new.

Posted by Ed Ryan | Report as abusive

The IMF just voted Canada as having the most secure banking system in the world. How come our neighbors to the North are ok and we are not? Simple – politicians and the law. To get a mortgage in Canada you must prove income with your tax filings. You must have 10% down. There are no 40 year mortgages. If we had the same laws in the USA instead of politicians pushing banks with “anything goes”, we wouldnt have this crisis. To re-capitalize their banks, the government of Canada is giving tax free savings of $5,000 a year to all citizens instead of wasting billions of tax payer money. Last – if you think government is more honest or efficient than free enterprise in running the financial industry you are dreaming. Theres a lot we can learn from Canada.

Posted by tourist | Report as abusive

The Govt still wants to repeat the same mistakes by applying the same bandage i.e. write off loans, rescue banks and lend subprime. Infact the Govt wants to make it a precondition on the banks to lend (presumably subprime)when there is no business case to lend.

Posted by C Varghese | Report as abusive

The only way to fix the problem is to convert to Socialism. By dismantling Communism in the Soviet Union Gorbachev laid the groundwork for the collapse of Capitalism. Socialism may not work in a poor and underdevelpoed societies but once you reach the apex of Capitalistic Greed and collapse the best move is to Socialism. It resolves the entire financial imbalance in one fell swoop by redistributing the wealth to the people and guarantees need will be met. Now we have the 5% Ruling Class that control 50% of wealth. Everyone else gets the scraps and is left with a dog eat dog mentality. There has been no progress in mankind’s evolution after thousands of years. The only people who lose out are the Ruling Class. Too bad the masses are brainwashed into protecteing the Ruling Class who have you brainwashe into thinking Socialism is a dirty word. Dog eat dog is Ruling Claases Manifesto, not Freedom. Mankind is enslaved by the Ruling Class and its proganda machine. Take the assets away from the ruling miscreants. They have robbed us with their insatiable greed. Even now they live in luxury while the people have pay for their mistakes and have less and less. The Ruling Class have power over the mass psyche. Get over the dirty word, “Socialism” because it is enslaving you.

Posted by RJAY | Report as abusive

Let’s face it, America has been looted, the UK also, but then again it was in on the scam. The crime of the century has been committed and the perpetrators will not be punished because the whole scenario has been essentially corrupted. To me it appears that a certain ‘mafia’ exists, all peeing in the same pot, scratching each other’s backs, all delivering their lines and ensuring that everything more or less has gone according to plan, check the contemporary history, go figure.
Thank you.

Posted by Leah | Report as abusive

We will achieve very little nationalising the banks. We need to go back to simple vanilla banking with low gearing. The politicians and regulators were asleep at the wheel. If you want to blame anyone blame them. They are accountable to the public and it was over to them to regulate the markets.

Remember most people did not see this coming not just the bankers. Everyone needs to stand up and take responsibility for their actions. We live in an interconected world and we all need to focus on sorting this out before it implodes.

I predicted this global recession in 2007 at a time when hardly anyone saw it for what it was. Most people have been and still are behind the curve on this. We need to focus on practical solotions with some urgency. I have little confidence in what i have seen to date.

Evan George Soros said at Davos he did not apreciate the scale of this problem. Forget the blame game for now and get on and focus on practical solutions to solve this huge global problem.

Jonathan Urlich

Posted by JONATHAN URLICH | Report as abusive

There is too much personal investment in the system to do as Taleb suggests – he is absolutely right on the nail. No need for polishing his words they need to be raw and immediate. The plea that those who have robbed the taxpayer they they have not broken the law shows that they are as morally bankrupt as the organisations they have led. We want to believe in them though, we want to believe that justice will win the day. Sad really.

Posted by Simon | Report as abusive

it’s common sense, but bankers wages depends on them not believing it (apologies to Emerson).

Posted by ray | Report as abusive

Good on you Mr. Taleb, It is obvious that the existing financial system can, regularly over at least 100 years,new billionaires at the expense of creating another billion of poor and disfranchised people. Socialism was given less than 70 years before it collapsed,it is time to establish Capitalism II as Mr. Taleb called it by nationalizing the banking system.


Posted by Maan Abdallah | Report as abusive

[…] Nationalizing the Banks Nassim Nicholas Taleb, author of The Black Swan (which I’m almost finished with), wants to “save capitalism and free markets from the banks“: […]

Posted by Nationalizing the Banks « The Cathedral Mind | Report as abusive

Accountability is the cornerstone of any sustainable civilization.

Egalitarianism is NOT a soft-headed notion: the altruistic/injustice gene enabled our survival within groups. Trust is a prerequisite for any market economy.

Does anyone really believe that social unrest and violence is just for other countries? I would caution President Obama in being perceived to have raised false hope.

A new deal, was it? Ask your friendly CDN steel makers or Mexican NAFTA partners.

Les Stewart
Midhurst, ON, Canada

Posted by Les Stewart MBA | Report as abusive

Why is there no mention of the fact that this financial crisis would not have happened if Congressional leaders had not encouraged Fannie Mae and Freddie Mac to not only mainstream subprime mortgages into the secondary market place but to defraut MBS investors with AAA ratings. I believe the fault lies with the policitians who when confronted by the Bush administration in Congressional hearings, refused to intervene.

Posted by RHarrisonScott | Report as abusive

I saw a giant billboard which read, “A good man solves his own problems and becomes a blessing to society.”
Banks hold our checking accounts, our mortgages, our car loans and our credit cards. Now don’t you think that is a little too much control? Saving money that you plan to spend is called disposable income. Saving money that you don’t plan to spend is call WEALTH. Put your wealth in something outside of the banking/insurance industry. Maybe in gold, or art, or your favorite collectible. Our middle-class is now so large; we can change anything simply by moving our money.

Posted by Will DiJohn | Report as abusive

Hurrah for NNT! Who else is truly standing up for we taxpayers?

Posted by Wendy Anthony | Report as abusive

Talking sense again Nicholas.

Posted by Tony Coleby | Report as abusive

Remember our 41st president’s call for 1000 pts of light? We need 1000 retired small-bank executives who love our nation to volunteer for less than 500,000 a year to run these banks and clean them up over a period of 2-3 years, and mentor young(er) bankers who’d make less than 500,000 a year on how to run the “utility” Dr. Taleb speaks of. In the meantime, have 10 of these 1000 bankers of light sit with Messrs. Geithner, Volcker, et al and write the rules of the new utilities.

I hope my opinion’s worth about a nickel.

Posted by Ed Block | Report as abusive

In banks “we don’t trust”.

Posted by Richard | Report as abusive

If you want to talk more about how we can make bankers accountable, Nassim Taleb opened a facebook group 818722129
Let us brainstorm together to make them accountable!

Posted by Christian | Report as abusive

Operant conditioning, a nice $110 million in positive reinforcement.

Posted by Michael Kirschvink | Report as abusive

Agreed about the bankers.
However: Remember inter alia James Johnson, Franklin Raines, Sen. Dodd & Cong. Frank?
Think they had nothing to do with the collapse?
They are, to coin a phrase, laughing all the way to…
And, given the 7+ decades of FDIC & similar risk-hiding legislation, there aren’t so many bankers alive who really know how to do risk assessment; they’ve never really had to learn, or had their own skin in the game.
Good luck to us…

Posted by Michael David Rubin | Report as abusive

Fat chance that Nissim will get his wish. The stupid Americans deserve what they get. The Bankers have robbed the public of their present and now they are taking their future. The American public should all be placed in financial slavery. They no longer deserve their REPUBLIC. How stupid and how dumb are the Americans. They are absolutely lazy and fail to read meaningful books.

The Treasury and the Federal has already turned over 3 trillion dollars to the Bankers. And now they are on the verge of giving away another trillion.

Fat chance the Bankers are going to do any suffering.

posted by Yonni Bar Davi

Posted by Yonnibardavi | Report as abusive

home owners insurance rating…

I can’t believe that I missed your point, I will have to do some research on this….

Posted by home owners insurance rating | Report as abusive

‘is not a good keeper also a good thief’? republic-plato.

Posted by kssong | Report as abusive

How do we make this happen? Other than just talk??

Posted by dave | Report as abusive

I find it insulting in the extreme that players in the financial markets can be excused for rampant greed and irresponsible risk taking. Ever heard of taking personal responsibility. These people have done wrong and must be brought to account. If someone leaves a car parked, unlocked and with the keys in the ignition then they are incredibly stupid, but that should have no bearing on the fact that if someone steals it they are guilty of theft. There are no excuses – you commit crime – do the time.

Posted by Michael | Report as abusive

I agree with Taleb, but I have different suggestions.
The problem is not in outrageous bonuses received by people in the companies saved by government. The problem is in the wrong incentives that led to the failure of these companies. The existing system encourages seeking short term gains and risking other people money. If you are not afraid of 10% risk of failure you can raise your return rate by 10%.
Why should they be afraid if the punishment was very mild even in the case of recent failure of cosmic size? The people that created the present situation were not stupid. They cared of their own interests and were very successful in enriching themselves. They remain rich, other people became poorer. Alas, there is a very good chance that the new people in the same positions will do the same, unless the system of executive compensation is changed in such a way that the interests of executives are aligned
with long-term interests of the company.

What can be done to reach this goal? The standard idea is that a large part of the income of executive should consist of stocks and stock options. However, this idea works well only in the case if stocks are held for long time (even if the executive has left the company). Suggestion:
any person participating in decision making (not
only CEO) should receive almost all remuneration in stocks that cannot be sold for at least 15 years. He can borrow against his stocks
with zero interest rate to finance lavish lifestyle or to invest in other companies. However,
if the price of his share fell below the amount he borrowed he should return ( a part of) his debt (and if he borrows very significant amount he should present a proof that he is able to pay his debt at the time of borrowing ).
The bankruptcy of the company will erase his remuneration almost completely.

Many people think that it would be fair to restrict
outrageous salaries of CEO’s, especially if their companies get the government help. I agree that this would be fair, but I believe that this does not solve any problems. If shareholders think that the high salary is justified there is no reason to restrict it. However, if the temporary success was only a prelude to a failure, the salary was paid for nothing and should be returned. Many banks would not survive the present crisis without government help; with the system I am suggesting their CEO’s would be punished for their wrong decisions.

Posted by abel | Report as abusive

[…] an article on Reuters written by James Saft, Taleb has offered up ideas on how to ” save capitalism and markets from the banks” […]

Posted by Quantifying the Unquantifiable « The Confluence | Report as abusive


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Posted by fha lenders | Report as abusive

fha loan limits…

It is being reported that American Home Mortgage will cease business today and is declaring bankruptcy. In the very near future Accredited Home Lenders will also probably file. Both cite recent losses and their inventories of less than high quality mor…

Posted by fha loan limits | Report as abusive

Taleb is confusing things, even in his book ´The Black Swan´ where he gives more than one and even contradictory definitions for said animal (!), apart from making quite a lot of other mistakes. Here, the idea of nationalizing the banks is completely wrong because the problem we actually face is not a question of ownership but one of most competent and efficient control whether regarding nationalized firms (to some extent this is already the case)or not. The sector includes many more players, not just banks. Strict control is also major problem when it comes to rating agencies. To conclude: To avoid further far reaching disasters, efficient and competent supervision is the name of game.

Posted by Hanspeter Bornhauser | Report as abusive

va refinance…

Foreclosure Assistance USA of Kenwood and American Foreclosure Professionals of Blue Ash with several violations of Ohio consumer protection law. A number of consumers have complained that the companies did not deliver on promises that they would halt …

Posted by va refinance | Report as abusive

Corporate citizenship and career legislators are at the root of the problem. No meaningful change will occur as long as there are vested interests in the system as it is.

Corporations must not be allowed to continue to enjoy citizen status. An individual is a citizen. A corporation is a group of people united under a brand name for the purpose of extracting profit.

There are legislators that have close ties to those families that own those brand names. They have the ability to utilize their considerable financial advantage to steer policy away from securing the public interest. Protection of profit is the primary consideration. The benefit of the people is not. Many legislators cater to these private interests in the name of public good even when there may be better, more practical solutions staring them in the face.

They like their seats in office. And they want to profit as much as they can from those seats. Limit them to reasonably short terms in office so that no vested interest beyond the public good can develop.

It’s just important to see things for what they are. If we decide we can live with things they way they are, then we will leave it for our children as a gift to them. If we decide things need to change for the better, then we leave that as our gift instead.

Posted by Benny_Acosta | Report as abusive

[…] companies in future periods. Futhermore, legitimising the behaviour of banks in previous periods emboldens those banks to get large enough to make vast profits during the next upswing, only to get bailed […]

Posted by The ‘That’s Capitalism’ Argument | Stephen Kinsella | Report as abusive

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