Quotes Entirely Relevant to Investing 04-19-2009

by Mr Juggles

We refused to touch credit default swaps. It would be like buying insurance on the Titanic from someone on the Titanic.
-Nassim Taleb (HT CP)

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  1. dave
    April 19th, 2009 | 3:25 pm

    Cute and relevant, also foolish. CDS specs have been paid handsomely. But please Taleb, keep taking bows.

  2. Harndog
    April 19th, 2009 | 6:42 pm

    Cute CDS specs the welfare mothers of finance…

  3. achilles
    April 19th, 2009 | 8:39 pm

    Some CDS specs have been paid handsomely. Taleb’s claim is that the expectation from them is/was negative

  4. Arthur B.
    April 20th, 2009 | 9:29 am

    Taleb isn’t really in the business of investing anymore, he can afford contradiction without harm.

    So yah, he won’t touch CDS but out of the money put are undervalued… sure.

  5. achilles
    April 20th, 2009 | 5:35 pm

    out of the money puts are different, way different. Their scale is much smaller, and they are traded in an exchange with a clearinghouse. Also, there is less correlation between the default of the underlying and the lack of solvency of the underwriter.

  6. vamos
    April 21st, 2009 | 7:57 am

    depends what the put is written on really

  7. Arthur B.
    April 21st, 2009 | 8:38 am

    – It depends what the CDS is written on too.
    – The scale of puts might be different, but scale is not being blamed in this quote.
    – Puts which are very out of the money would be bought OTC anyway.
    – For a strike low enough, the correlation between the put paying off and the CDS paying is close to 1, so the correlation with the underwriter’s solvency has to be the same.

    This quote looks like hindsight to me. If the CDS had proved a wonderful investment, Taleb would be all over explaining how it’s a good idea to bet on tail events.

  8. achilles
    April 21st, 2009 | 3:38 pm

    Thanks Arthur.

    Taleb wrote about this in his last book, Black Swan, which I think was published in 2006. So not so much hindsight?