Monday, October 27, 2008

Black Swan? The financial meltdown...

No, this is not a post about any more birds. The black swan has become some sort of a metaphor of unpredictable, catastrophic events, ever since Nassim Taleb's bestselling book. He draws his inspiration from the notion that prior to the discovery of black swans in Australia, all swans were thought to have been white.

The latest financial crisis has been touted as an example of Taleb's black swan.
Yesterday the Hang Seng Index crashed out 12%. The Straits Times Index has been wobbling around a negative 5-6% this morning. The way the market has been unraveling is nothing like what I have experienced before. I don't dabble in the market, rather preferring to see my assets grow slowly each month. So far, I have more than enough to feed my family, so it's been a workable strategy for me. Still.....I can see it's going to be a tough time for many of the middle and low income earners. Layoffs are going to wreak havoc in people's lives. I feel sorry for them, but don't know what I can do...maybe to be extra kind when they come to the clinics.

But is this a black swan upon us? I somewhat disagree with the pundits who have proclaimed it so. According to Taleb, a black swan is something that has occurred out of the one swould have seen it coming. This is certainly not the case here. It seems like the writing has been on the wall for a long time already. People just didn't want to see it. An obvious case of not being able to assess risks. Analysts were shouting buy calls up to the very last moment. Some are still trying to persuade others of the bargains out there.

You cannot blame folly and bad judgment on the black swan.

Now don't anyone dare to call the melamine fiasco a black swan event....!

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