Robert Merton Plays into Nassim Nicholas Taleb's Hand

Robert Merton (who blew up with LTCM) discusses events as Black Swans --"these people are smart... many went to Harvard" which plays right into Taleb's pseudoExpert problem.

Category:

News & Politics

Tags:

• Nassim
• Nicholas
• Taleb
• LTCM
• Merton
• subprime
• banking
• crisis

[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.

[tenisprofeta]

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

[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?

[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.

[vortexy1]

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

[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]

@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"

[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]

@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.