tailieunhanh - How to Prevent Other Financial Crises by Nassim Nicholas Taleb and George A. Martin

This article argues that the crisis of 2007–2008 happened because of an explosive combination of agency problems, moral hazard, and “scientism”—the illusion that ostensibly scientific techniques would manage risks and predict rare events in spite of the stark empirical and theoretical realities that suggested otherwise. The authors analyze the varied behaviors, ideas and effects that in combination created a financial meltdown, and discuss the players responsible for the consequences. In formulating a set of expectations for future financial management, they suggest that financial agents need more “skin in the game” to prevent irresponsible risk-taking from continuing | SAIS Review vol. XXXII no. 1 Winter-Spring 2012 How to Prevent Other Financial Crises1 Nassim Nicholas Taleb and George A. Martin This article argues that the crisis of2007-2008 happened because of an explosive combination of agency problems moral hazard and scientism the illusion that ostensibly scientific techniques would manage risks and predict rare events in spite of the stark empirical and theoretical realities that suggested otherwise. The authors analyze the varied behaviors ideas and effects that in combination created a financial meltdown and discuss the players responsible for the consequences. In formulating a set of expectations for future financial management they suggest that financial agents need more skin in the game to prevent irresponsible risk-taking from continuing. Introduction Let us start with our conclusion which is also a simple policy recommendation and one that is not just easy to implement but has been part of history until recent days. We believe that less is more in complex systems that simple heuristics and protocols are necessary for complex problems as elaborate rules often lead to multiplicative branching of side effects that cumulatively may have first order effects. So instead of relying on thousands of meandering pages of regulation we should enforce a basic principle of skin in the game when it comes to financial oversight The captain goes down with the ship every captain and every ship. In other words nobody should be in a position to have the upside without sharing the downside particularly when others may be harmed. While this principle seems simple we have moved away from it in the finance world particularly when it comes to financial organizations that have been deemed too big to fail. 2012 by The Johns Hopkins University Press . . . N obody should be in a position to have the upside without sharing the downside particularly when others may be harmed. While this principle seems simple we have moved away from it in the .