Taleb and banks

Nassim Taleb has written two very enjoyable books so far. In his book "The Black Swan", he vividly exposed the risk of investing in banks:

...institution makes steady profits over a long time, only to lose everything in a single reversal of fortune. ... If they look conservative, it is because their loans only go bust on rare, very rare, occassions. There is no way to gauge the effectiveness of their lending activity by observing it over a day, a week, a month, or ... even a century! In the summer of 1982, large American banks lost close to all their past earnings (cumulatively), about everything they ever made in the history of American banking - everything. They had all been lending to South and Central American countries that all defaulted at the same time - "an event of an exceptional nature." So it took just one summer to figure out that this was a sucker's business and that all their earnings came from a very risky game. All that while the bankers led everyone, specially themselves, into believing that they were "conservative". They were not conservative; just phenomenally skilled at self-deception by burying the possibility of a large, devastating loss under the rug. In fact, the travesty repeated itself a decade later, with the "risk-conscious" large banks once again under financial strain, many of them near-bankrupt, under the real-estate collapse of the early 1990s in which the now defunct savings and loan industry required a taxpayer-funded bailout of more than half a trillion dollars. The Federal Reserve bank protected them at our expense: when "conservative" bankers make profits, they get the benefits; when they are hurt, we pay the costs.

I read this book in 2007 but did not heed its warning. These "highly improbable" banking disasters seem to be occurring rather frequently in recent decades. With banks so highly leveraged, I suppose this is to be be expected.

By averaging down after the share price fell well below even the lowest prices that Barclays agreed to sell its shares to the Middle Eastern investors, and selling after the recent quadrupling of the share price, I have managed to make a small overall profit. However, it was not worth the tense ride!