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Will the Fledgling Occupations Molt into a Black Swan?

By Nassim Nicholas Taleb, Evan O'Neil | October 20, 2011

There has been much media consternation over the fact that the Occupy Wall Street movement has yet to articulate a major platform and demands, but one thing is for sure: They picked the right target. Commenting here on whether the occupations could evolve into a disruptive Black Swan, Nassim Taleb minces few words in his analysis of the financial crisis and its potential solutions.

His essential critique is that bank bailouts are a tax on citizens, masquerading as economics, to fund the compensation and bonuses of bankers. He describes the Obama Administration as being "impervious to norms of rational behavior" on this topic, having rewarded the very people (Geithner and Bernanke) who made mistakes in the first place.

His prescription then is to break the "bank cartel," for the sake of the finance industry. Banks that get bailed out should function like a public utility, except we have been socializing the losses and privatizing the gains. This is clearly an unfair deal.

Bank bailouts are a tax on citizens, masquerading as economics, to fund banker bonuses.

Going forward, says Taleb, bankers who have received bailout money, or are in a position to receive it in the future, should be banned from receiving bonuses. If they want to gamble with people's money, they can just work at hedge funds. His risk management strategy is simple: If you have the upside, you must also keep the downside. The captain must go down with the ship.

Taleb links this form of enforcement to its ancient ethical roots in Hammurabi's Code and Roman infrastructure. According to Hammurabi, the builder of a house would lose his life if the house collapsed, killing the owner. Similarly, Roman engineers were required to sleep under their bridges for a few nights to prove that they hadn't cut corners.

While I'm fairly certain that Occupy Wall Street would be in favor of redesigning bank compensation, or reinstating the Glass-Steagall provisions that were stripped out in 1999, I'm less confident in Taleb's diagnosis that this change alone will satisfy the 99 Percent. Too many dreams have been broken by this financial crisis. The desire for a new system free(r) of corruption is too strong and complex to be solved by any single measure.

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Read More: Business, Debt, Democracy, Economy, Ethics, Finance, Governance, Jobs, Tax, United States, Americas, Europe, Global

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