Thread by @TaylorPearsonMe

I've always felt like people missed this whole point with Taleb's black swan idea:

The argument is that the structure of modernity (and our financial system) makes black swans less probable but more dangerous.

2/ The argument is that when you intervene to try and suppress moderate volatility, you simply push that volatility into the future.

3/ Because volatility non-linear, the effects of extreme volatility in a short period of time are worse than more moderate volatility over a longer period of time.

4/ If you jump off a 1 ft. wall 100 times, you have jumped down a total of 100 ft.

If you jump off a 100 ft. wall a single time, you have also jumped down a total of 100 ft.

However, the net effect is different. In the first case, you have sore knees, in the second you're dead

5/ As it applies to the financial system over the last thirty years, the argument would be that central bank action has sought to avoid moderate volatility by bailing out the banks in the form of low interest rates.

6/ However, this may simply have resulted in accumulating more volatility and pushing it into the future.

7/ Instead of letting the weak players fail and making that a lesson to others that they won't be bailed out, the message has been that it's fine to take on too much risk: the gains are privatized but the losses are socialized.

8/ Instead of letting the system fall off a 5 ft. wall or a 10 ft. the wall that would have hurt, it may be that pushing the volatility in the future is setting up a 100 ft. wall.

9/ It's possible that we could have what Dalio calls a "beautiful deleveraging" where that volatility is gradually released over time, but, at least historically, volatility tends to cluster.

10/ In the words of Vladimir Lenin, “There are decades where nothing happens; and there are weeks where decades happen.”