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.

1. 1. stephanie lee-adama Oct 15, 2008 9:04 PM

   its amazing reading this now - and seeing what we are in today - i cant believe this was a fear two years ago and a reality today - oi how the world moves!