For weeks the word ‘decimated’ has been appearing with increasing frequency in the financial press:’decimated banking industry’, ‘Lehman’s decimated mortgage portfolio’ etc.

I remember hearing the word ‘decimated’ on TV during the 1967 Arab-Israeli war, when some newscaster said that the Israeli air force’s planes had been decimated, according to the Arabs. I assumed it meant reduced TO 1/10th. In fact, decimate (literally) means to reduce BY 1/10th. Someone once explained to me that if 1/10th of the soldiers in an army are killed in war, than perhaps three times as many are wounded, or more, and hence the army is basically incapacitated, and so decimation is is pretty bad, even if it sounds like a perturbation. According to the dictionary however, decimate comes from some old Roman custom of killing every tenth man in mutinous legion, a more plausible but less pleasing explanation.

I’m reminded of two things.

The first is that about two years ago I heard a dinner talk by someone from Lehman prime brokerage who said that everyone was so good at estimating risk and setting margin based on it that nothing bad could ever happen again. During the questions I asked him if he could think of anything that might cause financial disaster. “Only some massive disruption of society, like SARS ?” he answered. I wonder if he believed it himself.

The second is September 11th. There was an op-ed article in the NY Times by Jeffrey Goldberg in which he wrote that next president will be judged by whether he can prevent anyone from “gaining control of a nuclear device and detonating it in America. Everything else ? Fannie Mae, health care reform, energy independence, the budget shortfall in Wasilla, Alaska ? is commentary. The nuclear destruction of Lower Manhattan, or downtown Washington, would cause the deaths of thousands, or hundreds of thousands; a catastrophic depression; the reversal of globalization; a permanent climate of fear in the West ?” Goldberg then put the probability of that over the next ten years at about 10%, whatever probability means in these cases.