The Real Black Swan

Felix Salmon channels the public anger at the financial executives

In the other corner are the real people, the angry people, the unemployed people — and with them their elected representatives in Congress. They’re not interested in such distinctions any more, they’re not interested in what’s fair or what’s sensible. They saw their real wages stagnate for decades as the orgy of plutocratic self-congratulation reached obscene levels only to keep on growing. All they ever had was the American Dream: the idea that they, too, might one day become dynastically wealthy and join the overclass.

Now, of course, that dream is shattered — and, what’s worse, it turns out that very overclass is responsible for the working classes’ own present straits. While the talking heads in New York and Washington throw around their millions and billions and trillions before commuting home to their comfortable middle-class-and-better lifestyles, the rest of the country is mad as hell, and ain’t gonna take it any more. They’re not interested in constructive solutions or in leveraging private capital or in the sanctity of contracts: fuck that shit. Those days are over. They want to see jail time, confiscatory policies, and worse.

This is the real Black Swan that the financial services companies never saw coming. That there would be so much of hate that their contracts would get abrogated retrospectively, there would be compensation limits and in general things would not return to as they were. This is much bigger than CDS contracts exchange, bailout terms or lending norms.

In his book Taleb quotes a casino analyst who talks about how the biggest risks the casinos faced in the last decade had nothing do with lucky winners breaking the bank or robbers as in Ocean 11 movies but when the tiger attacked Roy which cost the casino a 100+ million dollars, or how one employee responsible for sending the winners documents to IRS simply filed them away and did nothing with them, which lead to huge fines on the casino by the IRS.

Similarly the Finance Executives who are currently whining about compensation rules and assuming that they will be able to make a rational case, simply do not understand the risks that they are facing are regulatory risks which are the worst sort and can only be worked around in the long run.

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