Friday, April 10, 2009

Taleb: Why Can't Homeowners Mark Houses to Whatever They Want?

Nassim Taleb has been hammering this point home for weeks now, but it's worth repeating: increasing opacity in our financial markets and institutions will only delay recovery. Investors will, justifiably, not trust financial statements, and keep their money away. Taleb also asks a great question - why do we allow banks to not mark to market, but not homeowners. If homeowners had a fancy formula some quant invented that has little relation to reality and no one understands, would we allow them to mark their homes to whatever they want? Of course, there's a very simple explanation. Bankers contribute huge sums to politicians, and most normal citizens do not, so bankers get to live according to their own fantasy rules. The sense of entitlement manifested in bankers not having to acknowledge the full reality of this crisis, while everyone else suffers never fails to astonish.

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