Thursday, 9 April 2009

Rant on Infrastructure and Black Swans

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Nicolas Taleb's Editorial in the FT yesterday is food for thought. ( )

Its a rehash of his black swan book, but with compressed messages and intensity.

One clause that stands out for me is the last:

10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

Then we will see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news.

Smaller companies, richer ecology, no leverage, equity.......

This is important stuff. But in this country (and probably everywhere) we lack the mindset and the infrastructure to really achieve this.

For many people small is cold. Small is lonely. Small is scary.
So we need to make it fluffier. Communities of small businesses can be improved. But not incubators in universities. Please no. That is a step too far! Too safe, too fluffy.
London has small enclaves of entrepreneurs, but is mostly dominated by the society of hedge funds and investment banks. Now is the time to change this (are you listening Boris!?).
We need more places like (check it out! Beats the pants off a serviced office).

Also we need to reduce the risk. At the moment equity goes into premises. Equity goes into Financial management. Equity goes into PR. It goes into infrastructure. And this is wasteful. Investors and politicians need to find ways of making this more efficient. I will be working on this with my small fund. So less equity to do the same thing means less risk, and more entrepreneurs. Simple!

Entrepreneurs should always share the downside. That's what makes it work. But the downside shouldnt involve having your family kicked out onto the street. That is not sustainable capitalism.

Unfortunately, and on the subject of housing, leverage has put us in a place where bricks, mortar and labor worth £150k costs £1m. This crazy mis-allocation of capital really needs to be reversed as part of building a sustainable capitalist society.

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