Anatomy of a blowup

I met Nassim Nicholas Taleb a few weeks ago at a friend’s party. Fascinating guy with a variety of interpretations of the credit crisis. His own history as a derivatives trader gives him a special edge as an academic taking potshots at the financial establishment.
His theories of risk-modelling are at the center of his recent best-seller The Black [...]

Latin hides the stupidity of the priest

The title of this post is taken from a Sicilian proverb. I think it partly describes the corporate culture that helped create the current banking catastrophe. I also think that it helps explain a phenomena endemic to a lot of bubbles throughout history: the corresponding madness of crowds, or suspension of common sense, which leads to their creation.
Risk models that didn’t account for crisis conditions [...]