Tuesday, February 3, 2009

John Thain and the Inner Sanctum

In a matter of months John Thain went from the hero who had saved Merrill Lynch to the poster-boy for Wall Street arrogance. Surely, Thain was fired for many good reasons. Yet, in the mind of the public, he will now be known as the man who marked the financial crisis by spending $1,200,000 redecorating his office.

Any time anyone tells you that you should follow your bliss or your creative individual and should ignore how it looks to other people, think of John Thain.

Thain's error was thinking that the good old days were going to come marching back, because, after all, they always had.

Evidently, he had never read Nassim Taleb's book on black swans. There and in later writings Taleb argues that bankers got themselves into the current mess by assuming that the past can guide their actions in the future.

We feel confident and in control when we think that we know what is going to happen in the future. When unpredicted and unpredictable events occur, we find ourselves completely at a loss to understand what is happening or to know what to do about them.

The models that economists invent and the stories that we all tell ourselves draw us away from the reality of these black swans.

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