On the same day The Wall Street Journal uncovers an alleged Ponzi scheme in the garden of private equity, Nicholas Nassim Taleb, the author of the best-selling book "The Black Swan," offers a blanket indictment of the entire industry for the same crime.
"We want economic life to be organized to be as distant from that Madoff model as we can," Taleb appearing on Bloomberg TV said, referring to Bernard Madoff, who pleaded guilty last month to managing a $65 billion Ponzi scheme.
LBOs are "too close to Madoff" because "you rely on new investors to pay off the other ones," Taleb said. "The stock market has some mild Ponzi characteristics. We have to make sure that innocent people are not harmed by this Ponzi-attribute."
This is the second time in a week that Taleb has argued for dismantling major pieces of the financial system. In a Financial Times column last week, he argued that finance should be much smaller and simpler. It's a little hard here to figure out what he's getting at. Private equity does raise new funds as they invest the old, but that's hardly illegal or shady. And PE funds are almost exclusively institutions or sophisticated investors, not individual investors.
Normally, we'd wave off such off-the-wall comments. However, Taleb is viewed as a guru who pops up in newspapers such as the Financial Times and on TV shows such as "Charlie Rose." And his overheated rhetoric, which ranges far a-field from his risk management specialty, is increasingly common, not least in reform-minded Washington. If they too believe as Taleb does, then bonus restrictions may be the least of dealmaker worries. - Matthew Wurtzel
See Taleb's comments from Bloomberg
See video of Taleb from Bloomberg TV
See earlier post about Taleb from Dealscape
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