Nassim Nicholas Taleb, The Incredible Hulk

The Economist reviews Nassim Taleb’s latest book, Antifragile, and has this awesome tidbit about Taleb at the end:

He is a weightlifter and calls himself “an intellectual who has the appearance of a bodyguard”. He avoids fruit that does not have an ancient Greek or Hebrew name and drinks no liquid that has not been in existence for at least 1,000 years. He has little time for copy editors, even less for economists, bankers and those who cluster at Davos. He once spent two years in bed reading every book about probability he could lay his hands on.

And according to New York Magazine, Taleb revealed the following to New Scientist, that he is not “some pantywaist writer dweeb.” He is the Invisible Hulk who uses the pen as his sword:

I lift stones and do weightlifting. I don’t go to the doctor except when I’m very ill, and when I go to India, I drink a drop of local water. Things like this harness the body’s antifragility. I have never had personal debt and never will. I also picked a profession in which I am antifragile, because any attack makes me stronger.

Love it.

Nassim Nicholas Taleb on Banker Bonuses

In today’s New York Times, Nassim Nicholas Taleb has a good op-ed decrying banker bonuses. He argues:

Instead, it’s time for a fundamental reform: Any person who works for a company that, regardless of its current financial health, would require a taxpayer-financed bailout if it failed should not get a bonus, ever. In fact, all pay at systemically important financial institutions — big banks, but also some insurance companies and even huge hedge funds — should be strictly regulated.

Critics like the Occupy Wall Street demonstrators decry the bonus system for its lack of fairness and its contribution to widening inequality. But the greater problem is that it provides an incentive to take risks. The asymmetric nature of the bonus (an incentive for success without a corresponding disincentive for failure) causes hidden risks to accumulate in the financial system and become a catalyst for disaster. This violates the fundamental rules of capitalism; Adam Smith himself was wary of the effect of limiting liability, a bedrock principle of the modern corporation.

Bonuses are particularly dangerous because they invite bankers to game the system by hiding the risks of rare and hard-to-predict but consequential blow-ups, which I have called “black swan” events. The meltdown in the United States subprime mortgage market, which set off the global financial crisis, is only the latest example of such disasters.

If you’ve never read The Black Swan, I highly recommend it. In it, Taleb goes into detail about the low-probability, high impact events that can derail individuals, institutions, and governments.

Taleb goes on to say:

What would banking look like if bonuses were eliminated? It would not be too different from what it was like when I was a bank intern in the 1980s, before the wave of deregulation that culminated in the 1999 repeal of the Glass-Steagall Act, the Depression-era law that had separated investment and commercial banking. Before then, bankers and lenders were boring “lifers.” Banking was bland and predictable; the chairman’s income was less than that of today’s junior trader. Investment banks, which paid bonuses and weren’t allowed to lend, were partnerships with skin in the game, not gamblers playing with other people’s money.

Of course, the big question is: how do we get banks to follow this no-bonus policy? Can it become a law?