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Nassim Nicholas Taleb: Blame the Bystanders to the Meltdown

Taxpayers, retirees, "perhaps even capitalism and free society" has been mugged. What's happened in the financial markets is a crime, and it's made worse by the fact there were plenty of bystanders who stood by and watched daylight robbery, say authors Nassim Nicholas Taleb, who wrote "The Black Swan", and Pablo Triana, whose "Lecturing Birds on Flying" is due out in spring 2009.

It's the bystanders Taleb and Triana take issue with, the risk management specialists who "knew that quantitative methods -- like those used to measure and forecast exposures, value complex derivatives and assign credit ratings -- did not work and could provide undue comfort by hiding risks."

It's a particular bugbear for Taleb -- especially the use of Value at Risk, which he believes was to blame for the crisis.

But no matter how often he sounds off about them, those same risk methods that failed us over the past 18 months are still being taught at business school, "where professors never lose tenure for the misapplication of those methods."

So they are calling for something a bit more drastic -- they'd like to see so-called quantitative experts shamed or at least made accountable, and a "drastic overhaul" of business schools.

"Ask for the Nobel prize in economics to be withdrawn from the authors of these theories... Boycott professional associations that give certificates in financial analysis that promoted these methods.
"The fraud can be displaced only by shaming people, by boycotting the orthodox financial economics establishment and the institutions that allowed this to happen."
I'm all for stopping the rot. But one question: to whom do we entrust our finances?

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