How Could They?

One of the mysteries of the current financial panic has been the question of how so many smart people on Wall Street could make such collectively stupid mistakes.  One thing we know, it wasn’t for lack of compensation!

Nassim Nicholas Taleb is a former derivatives trader-turned-college professor.  He is the author of “Black Swan,” one of the hot books among the professional risk managers today.  He is one of the few who have consistently been warning of these types of risks to the financial system.  If you’re willing to devote an hour and a half, watch his presentation to the Long Now Foundation.   If you don’t have the time, it boils down to a case of sophisticated computerized models which rely on faulty assumptions — a classic case of GIGO: Garbage In, Garbage Out.

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