Over a year ago I read a book titled Black Swan by Nas­sim Taleb. Nas­sim describes an inher­ent neg­a­tive prop­erty of infor­ma­tion, essen­tially, that it is dif­fi­cult or costly to think about, or deter­mine the unknown.

“Alas, we are not man­u­fac­tured, in our cur­rent edi­tion of the human race, to under­stand abstract mat­ters — we need con­text. Ran­dom­ness and uncer­tainty are abstrac­tions. We respect what has hap­pened, ignor­ing what could have hap­pened. In other words, we are nat­u­rally shal­low and super­fi­cial — and we do not know it. This is not a psy­cho­log­i­cal prob­lem; it comes from the main prop­erty of infor­ma­tion. The dark side of the moon is harder to see; beam­ing light on it costs energy. In the same way, beam­ing light on the unseen is costly in both com­pu­ta­tional and men­tal effort.”

- Nas­sim Taleb

Our refusal to con­sider the abstract has lead us to our cur­rent finan­cial dis­as­ter. If you’re unsure, just look at Taleb’s warn­ing of global eco­nomic col­lapse from his 2006 book:

“Glob­al­iza­tion cre­ates inter­lock­ing fragility, while reduc­ing volatil­ity and giv­ing the appear­ance of sta­bil­ity. In other words it cre­ates dev­as­tat­ing Black Swans. We have never lived before under the threat of a global col­lapse. Finan­cial Insti­tu­tions have been merg­ing into a smaller num­ber of very large banks. Almost all banks are inter­re­lated. So the finan­cial ecol­ogy is swelling into gigan­tic, inces­tu­ous, bureau­cratic banks – when one fails, they all fall. The increased con­cen­tra­tion among banks seems to have the effect of mak­ing finan­cial cri­sis less likely, but when they hap­pen they are more global in scale and hit us very hard. We have moved from a diver­si­fied ecol­ogy of small banks, with var­ied lend­ing poli­cies, to a more homo­ge­neous frame­work of firms that all resem­ble one another. True, we now have fewer fail­ures, but when they occur ….I shiver at the thought.”

“The government-sponsored insti­tu­tion Fan­nie Mae, when I look at its risks, seems to be sit­ting on a bar­rel of dyna­mite, vul­ner­a­ble to the slight­est hic­cup. But not to worry: their large staff of sci­en­tists deem these events “unlikely”.”

- Nas­sim Taleb, Black Swan 2006

It appears that fix­ing this mess will be left to my gen­er­a­tion. Please, edu­cate your­self. A good place to start is the most recent This Amer­i­can Life Pod­cast. It gives a detailed descrip­tion of why the finan­cial sys­tem is crash­ing. Another resource is the pre­vi­ously men­tioned Black Swan.

Good luck.