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Nassim Nicholas Taleb, the author of “The Black Swan: The Impact of the Highly Improbable”, has a simple proposal to as he puts it, “save capitalism and free markets from the banks.”
Nationalize the banks, limit the rewards to those who work in what he calls the “utility” part of the system and have a completely uninsured second leg that can take all the risks it wants and lose its shirt, he said in an interview in Davos at the World Economic Forum.
“They rigged the game. We pay them for their profits, there is no clawback so their incentive is to hide the risk they are taking.”
“Which is why eventually as someone who loves free markets, a total nationalization of the part of the business that requires insurance and does clearing and payments needs to happen.”
“I am angry with U.S. policy. What we had is exactly the opposite of socialism, they got TARP to pay their bonuses and to take more risk.”
He describes his plan as Capitalism 2.0. It would have a barbell structure, with the insured utility-like part on one end and the free market bit with privatized risk on the other.
He describes banking bonuses as asymmetric because the banker gets the upside but does not share in the liability which ultimately may be funded by taxpayers, as we have seen.
Mr. Taleb, who as you may have noticed doesn’t mince words, is no fan of private equity.
“Private equity has absolutely no reason to exist. The private equity holder has all the upside and the banks all the downside.” He’d have no objection to a system where private equity funds itself via hedge funds, so long as neither party had any recourse to government insurance.
And a bit like an Old Testament prophet, Mr. Taleb is angry and wants those he thinks are responsible to suffer.
“I want them poor and they deserve to be poor. You can’t have capitalism without punishment.”
Oh, and another thing, he wants Bob Rubin, who trousered millions while chairman of Citigroup, to cough up. “I want Bob Rubin to return his $110 million dollars to the American taxpayer.”
