www.boardpost.net/forum/index.php?topic=3272.msg36705#msg36705
ZItat sysintelfin:
"What we call here a Black Swan (and capitalize it) is an event with the following three attributes. First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme 'impact'. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable."
As far as "extreme impact" is concerned, WMIH's impact could be just its transformation or progress and not necessarily on the financial markets.
I particularly believe in regards to WMIH, the time would decide if I was right, in what the author conveys in the following.
"The main idea in Taleb's book is not to attempt to predict black swan events, but to build robustness against negative ones that occur and be able to exploit positive ones. Taleb contends that banks and trading firms are very vulnerable to hazardous black swan events and are exposed to losses beyond those predicted by their defective models. On the subject of business in particular, Taleb is highly critical of the widespread use of the normal distribution model as the basis for calculating risk.
In the second edition of The Black Swan, Taleb provides "Ten Principles for a Black-Swan-Robust Society".[8]
Taleb states that a black swan event depends on the observer. For example, what may be a black swan surprise for a turkey is not a black swan surprise to its butcher; hence the objective should be to "avoid being the turkey" by identifying areas of vulnerability in order to "turn the Black Swans white".
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ZItat kenwalker:
Your article used the word Outlier which jogged my memory, you may want to look at some of Malcolm Gladwell's writing if you haven't already. He writes about things that "lies outside the realm of regular expectations", if you widen your perspective enough it not outside the expected.
"In The Tipping Point Malcolm Gladwell changed the way we understand the world. In Blink he changed the way we think about thinking. Outliers will transform the way we understand success."
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Zitat CharlienDude:
Quote from: CSNY on May 18, 2013, 02:56:59 PM
WMI was not a Black Swan event any more than the events of 2008 were. I knew it was coming and discussed it with other people in financial services for years before it happened. It was well known by those in financial services that the housing bubble would lead to a meltdown within and that at least one major investment bank would go under. Those in the distress world (e.g., Tepper, John Paulson -- both out of Bear Stearns) planned accordingly and made fortunes. I doubt Taleb was surprised.
Absolutely. A friend I worked with in the investment business for years was a private equity officer at BOA during the 2008 crisis. Since I was no longer in the financial services business we didn't talk about the markets much because she was very tight-lipped. Part of their code! Every now and then she would mention the "housing bubble" and when was it going to pop! I wasn't paying close attention because it wasn't happening in our area like it was in the West Coast, AZ, NV and FL. Come late 2008 after the financial disasters, I asked how they came through and she said they moved their clients to CASH in April 2008!!! They could see what was coming from the inside seat they had!
I find it hard to believe if they saw it that far in advance that others who declared they just didn't know could possibly have been that naive.
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ZItat kenwalker:
A lot is still to be seen but one thing that has been proven to be that elusive "black swan" is equity's quick rally and fight to a least have a fight in BK. I know it didn't go like we all hoped but it wasn't over before it started like all the other white swans. Head nod to those that made that possible.
We better hope we got a black swan with WMHI, the norm for equity should be zero. Fits all three of the attributes 1) outlier, definitely 2) Impact, I think BK will never be the same 3) what was only resently possible ( internet ) now seems proable.
As far as seeing all this coming, somebody should have told AIG. They found themselves mostly on the loosing side of CDS and I say mostly because these fools ended up on booth sides of the same bet and not even realizing it. The whole while thinking the were making money.
Some did and some predicted it happening but most didn't because it did happend.
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ZItat sysintelfin:
Quote from: cowpatty10 on May 18, 2013, 08:10:46 PM
I agree, no.
Black Swan events are extremely rare, have outsized consequences and fundamentally change history. I don't believe anything that happens with WMIH will be rare, have extreme consequences or change history.
The assassination of the Archduke Ferdinand = Black Swan
The discovery of Penicillin = Black Swan
WMIH = not even close.
Unlike the IRS rules, the applied version of a theory as profound (at least philosophically) is not bound by a few pure attributes that are employed to capture the essence in simple terms. Whether it is Taleb or Gladwell, they both imply the value of subconscious clues and churning of information to identify patterns. Remember that even though Taleb appears to define that black swan events are not predictable, the practical value could be achieved in assuming a changed probability distribution with active observations and enhanced analysis.
Another person that I think highly of is Peter lynch, the legendary money manager. In every day simple language, he describes the power of general observations (patterns) over specific knowledge to recognizing an extraordinary investment opportunity.
Let us not call WMIH, for the sake of avoiding a breakdown, as a black swan event but as a rarity ( a rare bird, black swan) in terms of investment potential. To a varying degree of implications as I understand, all three writers mentioned above suggest that if one is convinced by past experiences, subconscious cues and/or repeatedly refined analysis of compelling general factors, one might consider the chances of an opportunity such as WMIH as a great success as a positively skewed (fat tail) probability distribution as opposed to a normal distributions employed by the market as a whole.
Years ago, I had this flash when I first ate Burrito at Chipotle. My instincts even without specifics grew sharp with the opening of new outlets. I had the same feeling years ago when it started ordering more and more from Amazon. I did not trust my instincts and sold Apple too early.
Finally, I did put my analysis of patterns with conviction (rate of innovation and success rate increasing every year) in few gold mines in biotech. I am not suggesting that one should bet the farm but a strategy could be developed based on one's expectation of probability curve which is different from the market.
All the researchable general factors indicate that WMIH could be rare opportunity. Yet the market relies on specifics and would not consider it so rare (normal, very rare that it would prove to be a great success). I am All for specific and detailed analysis to the extent possible but sometimes one's instincts (as a result of being passionately cued in and not as a psychic phenomenon) and big picture analysis are more powerful than the absence of specific information.
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ZItat kenwalker:
The black swan theory or theory of black swan events is a metaphor that describes an event that is a surprise (to the observer), has a major effect, and after the fact is often inappropriately rationalized with the benefit of hindsight.
The theory was developed by Nassim Nicholas Taleb to explain:
1. The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology
2. The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities)
3. The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs
New term to me and not that it really matters but I think "black swan event" describes the melt down, WaMu, and as yet to be full seen WMHI completely.
Big Picture:
1. The "rare event" happened, generally the housing bubble popped, banks were seized, market crashed, Tarp money was printed, people lost jobs and exasperated the problem.
2. " non-computability ( the inability to solve a problem ) of the probability of the consequential " Everybody in hindsight "saw the problem" and knew this was going to happen as those that now point to indicators.
3. "people individually and collectively blind to uncertainty" Yet few did anything, otherwise it wouldn't have happened.
Creation of WMHI:
1. I suspect more than a few people were caught off guard and "beyond the realm of normal expectations" when equity survived BK.
2. " non-computability ( the inability to solve a problem ) of the probability of the consequential" I suspect more than a few people view equity as a problem and our survival speaks of their inability.
3. "people individually and collectively blind to uncertainty" Subjective, but I owe our existence to the arrogance of our then opposition. Sounds blind to me.
All that deals with the cause and creation of WMHI, we have yet to see the finial results. What happen when two rare black swans mate?
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Zitat CSNY:
"The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs"
= Nate Thoma, from the point of view of the SNs and the lawyers in this case, who would have had such a psychological bias.
Once NT appeared, made his case, and the court issued the discovery order, the subsequent events were not Black Swan as it was obvious to the lawyers, hedge funds, and even the laypeople that the case was radically changed such that equity had leverage and it was highly unlikely that the extant POR (i.e., jettisoning equity) would be confirmed.
If you're interested, Black Swans is somewhat quanty but Taleb arranges it such that a person with college-level math should have no trouble following it. However, the philosophical discussions and references (actually, the whole book is a philosophy tome) are way above the pay grade of even most Ivy-league college graduates as Taleb is who he is (someone with a world-class education and first-rate intellect) and wrote to keep the people at his level interested. For at least 75% of the general population, a synopsis would be better than a futile struggle with any of his books.
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ZItat kenwalker:
Imagine you are talking with someone that did not have the advantage of an Ivy League education, in fact do more than imagine.
I can't tell if you are agreeing ( it don't matter as I'm accustom to people not agreeing with me ) as whether this is or " not Black Swan as it was obvious to the lawyers, hedge funds, and even the laypeople that the case was radically changed ". The 3 steps are all part of the realization of a Black Swan and are experienced one at a time, if you could tell beforehand it couldn't be a black swan. The radical change that NT injected is the dawning of the third and final step.
Like I said, don't really matter
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Zitat myadad:
You know... This entire discussion is about as confusing as the Movie "Black Swan" was. That movie was difficult to comprehend and thinking that what happened to WAMU is going to change the world is equally incomprehensible. It is in the interests of the government and Wall Street to bury this sad chapter ASAP. While WMIH lives on and may prosper, it isn't going to cause things to change. The privileged and powerful will continue to run things as they see fit while most Americans will continue to live with the illusion that what they think and how they vote really matters.
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Zitatende
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