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‘Black Swan’ Author Says U.S. Should Have Broken Up Banks

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Author Nassim Nicholas Taleb
Author Nassim Nicholas Taleb, whose latest book is “Antifragile: Things That Gain From Disorder,” also warned that the Fed’s policy of buying government bonds has served only to transfer private debt into public debt. Photographer: Scott Eells/Bloomberg

Feb. 19 (Bloomberg) -- President Barack Obama’s administration has perpetuated the causes of the 2008 financial crisis by failing to break up the largest U.S. banks, according to New York University’s Nassim Nicholas Taleb, author of the book “The Black Swan.”

“An environment that doesn’t learn from mistakes is one that’s not very healthy,” Taleb said today in an interview with Erik Schatzker on Bloomberg Television. “We should have broken up the banks, we should be decentralizing. Instead the system is getting more centralized.”

Three of the four largest U.S. banks -- JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. -- are bigger today than they were in 2007, heightening the risk of economic damage if one gets into trouble. Lawmakers and regulators from both parties -- including U.S. Federal Reserve Governor Daniel Tarullo -- have called for new efforts to limit systemic risk, arguing that the 2010 Dodd-Frank Act failed to curb the growth of large banks that needed bailouts after Lehman Brothers Holdings Inc. collapsed in 2008.

Taleb, whose latest book is “Antifragile: Things That Gain From Disorder,” also warned that the Fed’s policy of buying government bonds has served only to transfer private debt into public debt.

“They are punishing the people who are saving, and saving the people who made the mistakes,” Taleb said.

Taleb said he is investing in U.S. stocks while buying “way out of the money” put options. A put option gives the buyer the right to sell a security at an agreed price, typically below its current value, protecting the buyer against a dramatic decline.

Known for his investing strategy of seeking to profit from unpredicted shocks and sudden declines in markets, Taleb popularized the term “black swan” in his 2007 book with the same title. The term derives from the once-widespread belief in the West that all swans were white, until European explorers discovered the existence of black swans in Australia.

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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