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.

Black Swan Makes Sense

Here's Nassim Taleb making sense, as usual. On mark-to-market:

mark-to-market makes banks look more dangerous, exactly like a thermometer makes a patient look more sick. Eliminating the mark-to-market is exactly like putting your head in the sand.

On retirement investing:

Have a dual strategy. The first one is hyperconservative. As much as you can - whatever you don't want to lose, don't lose. Don't trust the market with what you cannot afford to lose. Whether 80%, 90%, 20%, whatever it is that you need for your retirement, and the rest is play money....We're going to de-financialize the economy, to what we had in the '50s, '60s, and '70s. People will be fed up with the stock market, and will realize that they cannot rely on financial assets, neither as a reservoir of value, nor as a means to earn a living.

If Taleb is right, and the public does sour on stocks for the long run, putting their money into ultrasafe Treasuries instead, then we could face a secular shift in market activity and salaries. The retirement of the Baby Boomers will certainly exacerbate this problem for stock brokers, as a generation cashes out whatever they have left. It could be a long time before we get back to the October 2007 highs.

Citi: Bank Stocks Will Fall

A Citigroup strategist advises clients to buy puts on bank stocks, since the recent run-up in bank stocks will likely fade. From Bloomberg:

Investors should buy put options on financial companies because derivatives-market trading suggests the industry will retreat after a 43 percent surge since March 6, Citigroup Inc. said.

Guess that means suspending mark-to-market won't have an effect. Who would have guessed that banks lying about their balance sheets won't make them any sounder?