`Black Swan' Author Says Investors Should Sue Nobel for Crisis

Discussion in 'Wall St. News' started by Optionpro007, Oct 8, 2010.

  1. Claudius

    Claudius


    That's Taleb's whole point, mortgage securitization is the brainchild of portfolio theory.
    We all know that lending some random douchebag you don't know $100k to buy a house would be really dumb. We just wouldn't do it.

    But according to portfolio theory, if you pool your $100k with other investors, and then split the money between a large number of random douchebags, much of the risk disappears.

    Portfolio theory enabled the most conservatively managed (AAA bonds only) pension funds to lend huge amounts of money to douchebags with no job prospects to buy overpriced houses they couldn't afford.
     
    #31     Oct 8, 2010
  2. Claudius

    Claudius

    This is totally irrelevant to the OP, but out of interest, how do you define "Preferred stock"?

    Debt or equity, or both, or does it matter?

    Or do you simple not buy into companies that issue it?
     
    #32     Oct 8, 2010
  3. LEAPup

    LEAPup

    I've had that book in "shelf development." I need to read it. What have you taken from it thus far?
     
    #33     Oct 8, 2010
  4. mokwit

    mokwit

    There is always some unprincipled ambitious (or stupid) academic who will come out with a theory to support some political agenda. The nature of science as encapsulated in 'science advances one funeral at a time' means that any BS can be supported if it comes from someone or somewhere prestigious enough.
     
    #34     Oct 8, 2010
  5. mokwit

    mokwit

    e.g Trickle down economics? That justification for tax cuts for the super rich is negated by what I was told by a Director of a store chain in Indonesia that catered to the poor - he told me the poor spend every additional money they get immediately because hey have a permanent backlog of things they want to buy but can't because they don't have the money.
     
    #35     Oct 8, 2010
  6. There's no obligation to pay the dividend, therefore it's equity.
    The crucial difference is that payments on debt have to be made, dividends on stock don't.
     
    #36     Oct 8, 2010
  7. Claudius

    Claudius

    Under that definition, "Revenue Bonds" would be equity?!?!

    What I'm trying to point out, is that the distinction between debt and equity isn't as clear cut as you might think.

    From the issuing firm's perspective they are just different sources of capital with different associated costs.
     
    #37     Oct 9, 2010
  8. Revenue bonds still obligate you to pay the debt, out of a specific revenue stream. Obviously it's debt. That word "obligate", you know.
    Also, this is only used for infrastructure type stuff, so I'm not even sure why you're bringing it up.
     
    #38     Oct 9, 2010
  9. pak

    pak

    The editor left out the part that Dr. Taleb wants to turn it into a class action suit with a special pay out to ET members if Victorious...
     
    #39     Oct 9, 2010
  10. Claudius

    Claudius

    But there's no obligation if the attached revenue stream dries up. ie the issuer doesn't necessarily go into default for missing a payment.

    I realize it's not exactly the same as dividends on common stock in respect to legal rights and obligations, but the payments of both are linked to revenue and are not guaranteed.
    ABS's (which are issued by listed companies) are more or less the same.
    Smells like debt, walks like debt, but quacks like equity.

    I maintain that there's a lot of grey.
     
    #40     Oct 9, 2010