Robert Merton Plays into Nassim Nicholas Taleb's Hand

[randomchapters]

There is just no point telling a crazy person he or she is crazy. No matter how hard you try. :)

[finalChoice]

i am less stunned by his beliefs than by his confidence.

remarkable.

[nagee76]

If what you said is even half true - that any one with half a brain knows that these models are deeply flawed then why we are in the midst of the biggest global financial crisis since the Great Depression? does this mean that most individual/institutional investors are dumb and that too with their own/client's money?I have never invested in the markets and i could be wrong but NNT argues that these models have generated a fake sense of security which is the biggest reason for the crash.

[nagee76]

@Lrud... It may be common knowledge to you and you are more than welcome to say that Taleb is not adding anything of value...

Taleb's contention is that these models give a very false sense of security to people who may think that they have got "their bases covered" because their portfolio managers use the best models for risk management out there.

I would suggest that you read his book to understand him a little better but i am not sure if you are in the mood for that.

[nagee76]

@Lrud2 I dont think Taleb says that Morton knows nothing - he merely points out that Morton cannot possibly "price for risk..properly" no matter how sophisticated a derivatives model he can come up with. That is the point here. The model is after all......a model... NOT reality. As Taleb says, don't confuse the map for territory.After a crash of epic proportions, it would do well for people to show some humility about the LIMITS of their expertise. instead of mocking others

[nagee76]

Volgaone, Can you please let us all know when this event where Merton mocks the concept of a Black Swan happened ?

Merton looks like an absolute fool to point to "experts who went to Harvard" when NNT says that these so called "experts" are PRECISELY the problem.... God, this is amateur hour from Merton....and oh by the way, these so called Harvard educated experts have filled the top most positions in the US Govt for the longest time.... make your own conclusions !

[Lrud2]

Taleb is a parasitic grub who has provided exactly 0 value to the economic profession. Merton is not perfect, but I can't believe people take Taleb seriously. He offers the insight of a first year economics paper (at best) and communicates it like a tabloid newspaper.

[joebob2k8]

@Lrud2 No, you and anyone else in the so-called economic profession are parasitic grubs. Finance doesn't produce wealth, but it's very good at funneling claims on others' wealth into the pockets of a few elite. The mathematical masturbation practiced by the economic priesthood is nothing more than a sales tool used to gull innocents out of their life savings. Fresh tyros of finance or wannabees such as yourself must themselves drink the snake oil before serving it to their unsuspecting victims.

[Lrud2]

@joebob2k8 Stop embarrassing yourself. Let's count the ways you have already done so:

1) You think economics and finance are synonyms.

2) Finance does produce wealth. The liquidity and borrowing capacity created by the banking system is the backbone of any economy. Look what happened when your US banks failed.

3) There are no 'innocents' in option trading.

4) I was criticising Taleb - making your whole diatribe a non sequitur - and he falls under your definition of 'parasitic grub' too...

[joebob2k8]

@Lrud2 Grow up. Just because I hate liars and thieves alike does not mean I think they are the same thing. Finance cannot produce wealth, wealth is created by productive labor. Finance can only create money as you just demonstrated by disingenuously listing money creation twice without calling it what it is. The innocents to which I refer are the productive members of society who are encouraged even by their government to put their life savings into an elaborate scam.

[nagee76]

@Lrud2 Some one seems jealous of Taleb here.... To say that Merton is not perfect is like saying that Bernie Madoff is not perfect. Btw, your assertion that finance creates wealth leaves my head shaking. There is a difference between helping businesses meet their day to day demands and actually creating wealth.That difference is lost on you.IMHO, Taleb shows the absolute shallowness of so called "experts" like Merton who have very limited practical knowledge of the markets

[Lrud2]

@nagee76 I understand your distinction, but I draw a different distinction. "Wealth" is a very broad term. Most people interpret wealth to mean "capital" or some variation. To me this overlooks the importance of liquidity in any estimation of wealth. Many an asset rich firm has gone broke due to a lack of liquidity. I am not jealous of Taleb, I just do not understand why people take him seriously. He has based his career on tearing others down rather than creating useful knowledge.

[nagee76]

@Lrud2 , You first tell us why we should take the likes of Merton,Bernanke,Greenspan seriously and then I will make the effort to show why you should respect Taleb. For starters he BET on this catastrophe happening and made a handsome profit on it.... how many smart alecks can claim that ? He is taken seriously because he knows what the hell he is taking about - and more importantly he knows the limits of his knowledge - more than what can be said about the "experts"

[vortexy1]

@Lrud2 Of course, So which TBTF bank do you work for?

[mkraif]

I read the Black Swan and the practical arguments presented by Nassim hold.

Merton's reaction is "normal" as he's defending the theory he contributed to create and develop. It's a human attitude not a scientific one :)

[TheBrotherMouzone]

Just one of the examples of why the Nobel prize in economics is completely worthless. (Another example is the idiot Paul Krugman.)

[aaronhedberg]

Wow, this guy is such a n00b. he should either stfu or gtfo

[IMD]

I havent read the Black Swan yet..guess it is time to pick up the book! We live in a complex system that delivers extreme deviations. Current risk management and economic analyses methods fail us in such a system because of low predictability. What should we do in such an environment? At the IMD OWP 2010, Nassim Nicholas Taleb will present simple rules (lower leverage, less reliance on deficit spending, less mathematical risk management) for a black swan robust economic system.

[aaronhedberg]

@abecads1938 Yeah actually it takes someone who has a bit of 'street wisdom' to know that all this math is a bunch of bullshit. Economists have something that is called 'physics envy,' much like penis envy, in case you didn't catch the allusion ;). Yes I read his book, but I am very proud of my intuition and personal experience in NY. Let me tell you something, EVERYONE in nyc is on the government payroll. Section 8, welfare, etc etc and now the whole banking system is on welfare. go figure

[sysopkc]

HA BULLSHIT, Most of them are bumbling idiots who dont even understand market fundimentals. Thats an outright lie or simple ignorance. As a trader some of the DUMBEST people in the industry ive EVER met were involved in the brokerage and securities dealing representing banking institutions, many of whom are now being bailed out. I am not naming names but you know who you are. They are incompetent beyond imagination and not only that, they are wreckless without accountablity.

[PhDEconomics]

Here Here

[PhDEconomics]

Four letters Merton.... LTCM!!!

[lionel0767]

Criticizing Merton for his and BS models is the same as criticizing Einstein for Hiroshima bombing. Both are not responsible of those behaving badly or misunderstanding their theory. Merton work was just to help evaluate options and risks, not to encourage people to take maximum risks. I am not sure that all people in this forum understand the BMS theory and model. But I am sure that insulting is easier than thinking well, as you can see.

[JSan898123]

This is a man who completly fucked up at LTCM, His models are useless, becuased thier based on normal market activity, and when markets gets fuck, he gets fucked even harder, dont listen to this guy, i dont care what he's done

[maartinjsh86]

one arrogant idiot

[Weleski]

It's hard to believe that Merton is trying to pick fights with Taleb considering that Merton's own Gaussian/econometric strategies absolutely blew up LTCM. You would think that one multi-billion dollar explosion would send a very distinct message to Merton and company. Apparently it did not.

[lionel0767]

@Weleski

This has nothing to do with the model of MBS. This has to do with the level of risk taken.

[OriginalAtomicSheep]

@Weleski possibly a nobel prize has clouded his judgment?

[eparsels]

"Taxes and Business strategy" textbook written by his buddy Myron is a book that has caused more harm to economic well-being than any other book in history. His options pricing model equally appalling.

[croke12]

Taleb for president, or atleast to replace all Finance and Economics classes.

[viewerize]

Like Taleb had said "don't take what you know too seriously". Economics is not all about predicting. He mostly attacked and outlined flaws of financial economics. Even though he has outlined the flaws of econometrics with prediction but econometrics can still be used to analyse certain casuation of an event's occurence. This analysis doesn't need to employ for prediction but for example market intervention. Economics is whole lot bigger than just time series and financial economics.

[daniellewis2008]

man, what an imbecile. i bet fischer black, the only true genius merton ever had the honor of knowing, would have loved taleb had he lived long enough. without black, merton is just the same overrated pathetic loser as samuelson. let's scrap merton from all the curricula, or at least assign him to financial history, as one curious episode when the imbeciles took power in academic economics and finance.

[tenisprofeta]

I mean, this guy went bust with LTCM years ago and he's still talking??

[Jude1930]

So true!

[MikeJacobsJr]

@tenisprofeta Because he is a blowhard with a mental disorder and can't stop flapping hip lips. Did you know that his father Merton Sr changed he family name to Merton from something really Jewish sounding?

[mirovitch2000]

Metron is an idiot. Go price your options.