More Skin in the Game in 2013:: Nassim Taleb [Project Syndicate]

Without sound foundations the global financial sector are little more than licensed “cowboy builders”!

The ancients understood that the builder always knows more about the risks than the client, and can hide sources of fragility and improve his profitability by cutting corners. The foundation is the best place to hide risk. The builder can also fool the inspector; the person hiding risk has a large informational advantage over the one who has to find it.

More Skin in the Game in 2013 by Nassim Nicholas Taleb – Project Syndicate

From quantum complexity to monied tossers

Probability and Measure

Probability and Measure (Photo credit: John-Morgan)

I am not expert (in anything!) but, unless I am very much mistaken, these scientists are striving for the simplicity on the other side of complexity that Einstein craved.

When confronted with a complicated system, scientists typically strive to identify underlying simplicity which is then articulated as natural laws and fundamental principles. However, complex systems often seem immune to this approach, making it difficult to extract underlying principles.

Simplicity and quantum complexity.

I particularly like the reference to “these systems have memory and are predictable to some extent; they are more complex than a coin toss”.

Which leads me, nicely, on to a recent paper by Nassim Taleb! “Why We Don’t Know What We Talk About When We Talk About Probability”

Taleb is one of the most well known and widely published, critics of the dangerously “naive” practice of applying raw mathematical probabilities [applied to individual or independent events e.g. the coin toss or spin of a roulette wheel] to the, serious and very real, world of finance and insurance*: where it is not ignorance of the subject that is the problem, so much as the blatant disregard for the medium and long term impact upon corporate profitability and social resilience.

A manifestation of the unacceptable face of “Irresponsible Capitalism”

Read more of this post

Nassim Taleb on “antifragility”:: non-sissy uncertainty

English: Escultura dedicada a la Entropía en l...

Taleb rarely disappoints. And here is a “new” word that most of us may understand better as resilience(ish)! For more reading on the subject I would recommend this piece: Antifragility — or— The Property Of Disorder-Loving Systems but I’m sure you will find the following of interest too.

Here’s a quote from the prologue of Antifragility, which should give you a sense of Taleb’s substance and style: “This book is about how to domesticate, even dominate, even conquer, the impenetrable, the unseen, the non-understood, the opaque, the perplexing, and the inexplicable. Wind extinguishes a candle and energizes fire. Likewise with randomness: you want to use it, not hide from it. You want to be the fire and wish for the wind. This summarizes my non-sissy attitude toward randomness and uncertainty.”

via Non-Sissy Uncertainty: Why I Inflict Nassim “Black Swan” Taleb on My Students | Cross-Check, Scientific American Blog Network.

2011 IBM Global Business Resilience and Risk Study:: cling to the wreckage of failure…or invest for the future?

imageThere isn’t much point in me, again, reiterating WHY “Corporate Resilience” [Nassim Taleb’s “antifragility”] is so important in the Digital Age! So, whilst I am slightly concerned that this report seems to infer this is more of an issue for larger firms, it is probably best I let any interested readers make their own minds up on the matter.

Traditionally, risk management tended to focus on a combination of risk transfer—achieved through insurance or other financial products—and business continuity planning to keep the organization running during a crisis. Beginning in the 1980s some companies started to develop enterprise risk management (ERM) programs building on the “circle of risk” first conceptualized in 1974 by Gustav Hamilton, risk manager of Sweden’s Statsföretag AB. The idea was to link different risk management activities such as identification, assessment, control, financing, monitoring and communication into a continuous process. In many cases, however, each element continued to operate within organizational silos.

The economic downturn beginning in 2008 triggered new interest in risk management, driving adoption of truly holistic approaches where managing risk is inherent to every decision. Today, leading organizations are pushing these concepts further to develop enterprise-wide business resilience strategies. They strive to make the ability to respond rapidly to all kinds of unexpected events—opportunities as well as threats— part of the corporate culture. This means building a business resilience strategy that engages everyone in the organization.

Read more of this post

“Helping Banks is Hurting Insurance Industry” Geneva Association Tells G20

Collapse_smallPlease forgive me for not reaching for the paper tissues  THE real story is that helping banks is hurting …SOCIETY!

Without doubt, the activities of billions of ordinary citizens did not give rise to systemic risk! FACT!

Do we really need to ask, in whose interest is it for the insurance industry to tell only half a story?

OK, so the language is clever “…traditional insurance activities do not give rise to systemic risk”. Hard to argue with. But this communiqué smacks of insurers’ girding their loins in anticipation of the fallout from further, inevitable, global financial turmoil.

Presumably choosing to distance themselves and pointing their fingers at the banks is intended to stave off the threat of further regulation. Even if that is, ultimately, unsuccessful, it may serve to delay unwanted scrutiny and provide the opportunity to adapt the current model. It could also be touted to hard-pressed businesses as a “justification” of a potential tsunami of premium increases that may follow the next financial earthquake: growing seismic activity in the markets serve as a warning.

The insurance industry is, hardly, in the “innocent bystander” category!

Read more of this post