Lessons From The Most Recent ‘Financial Crisis’

Here are the key lessons to learn from the most recent financial crisis:

Seth Klarman walks through 20 lessons we haven’t learned. #1 Things that have never happened before are bound to occur with some regularity.

Two takeaways from What’s the one question the Federal Reserve Can’t Answer? First, you can never merely do one thing — It pays to ask “And then what?” Second, “try to be prepared for a wide range of outcomes.”

And from Nassim Taleb, the key lesson is not black swans but rather two main points. First, we’re better off with no model than with a defective model and incentives matter — especially when they are all upside. Taleb argues the ancients were fully aware of this upside-without-downside asymmetry, and they built simple rules in response. Nearly 4,000 years ago, Hammurabi’s code specified this: “If a builder builds a house for a man and does not make its construction firm, and the house which he has built collapses and causes the death of the owner of the house, that builder shall be put to death.” Simple. Effective.

Jamie Dimon, CEO of JP Morgan Chase, warns of the perils of too much leverage. (We have short memories, remember When Genius Failed: The Rise and Fall of Long-Term Capital Management). Dimon also gave an excellent speech at Syracuse on what it means to hold someone accountable.

Richard Thaler argues the toxic ingredients for ruin include risks that are erroneously thought to be vanishingly small, complex technology that isn’t fully grasped by either top management or regulators, and tricky relationships among companies that are not sure how much they can count on their partners.

Charlie Munger warns Basically, It’s Over: A Parable About How One Nation Came To Financial Ruin.

Still curious? Read The Big Short and Too Big To Fail. If you want to learn more about the “Internet Bubble” — that seems so long ago now doesn’t it— read Bull! : A History of the Boom, 1982-1999: What drove the Breakneck Market–and What Every Investor Needs to Know About Financial Cycles.