I was contemplating whether to criticize Taleb's new book or Buffett's views expressed in today's interview....I start with Taleb.....
One can be inundated with all the information in Taleb’s book, but there is no point if it cannot be converted into useful knowledge. Different readers of the book, for example, can read the same facts and come up with diametrically opposite and yet equally plausible conclusions. Who is right?
My opinion after reading the book is, investors should recognize that economic outcomes, like investing, is really a game of probabilities. There are not a lot of definite things that will happen in the future but that only depends on the interfragility, not antifragility. To me, investments do not gain from disorder but they gain from order. (Some confuse disorder to price volatility. When I refer to order or stability I am not referring to the VIX….)
To be more clear, Taleb basically claims that decisions like the decision to allow Lehman to fail, was good for the system. But would a different governmental response have generated a less favorable outcome? I don’t think so….
Let me try to illustrate this: Who are the strongest players today? We are all finally agreeing that the stock market is mainly driven by Fed actions…..so why is the Fed the strongest?
After letting Lehman fail, the central banks were under popular pressure to save the world, so obviously they had to apply stimulus in large enough quantities to replace dwindling export demand. The remaining research to be done is then consisted of identifying whether saving Lehman would have avoided the necessity to apply such aggressive stimulus?
.................The recovery came through the injection of stimulus packages, not the “antifragile” concept of letting Lehman fail. The saving of Lehman would be the best stimulus and the best multiplier effect that would avoid the concept of quantitative easing. Saving Lehman would have been a qualitative measure.
Indeed one of the most inevitable outcomes of 2008's subprime crisis, in retrospect, was the danger of collapse facing the financial system. Hence, the collapse of Lehman did not only affect banking stocks, but indeed all stocks. The Fed since then has tried to avoid making the same mistake because it knows we live in an interfragile economy, not an antifragile one.