x Abu Dhabi, UAESaturday 22 July 2017

Thoughts on the unthinkable

Perhaps it should not have come as a surprise that Nassim Nicholas Taleb, having agreed to an interview, would then go silent.

Perhaps it should not have come as a surprise that Nassim Nicholas Taleb, having agreed to an interview, would then go silent. After all, the core idea in his book, The Black Swan: The Impact of the Highly Improbable, is expecting the unexpected. "The world we live in," he says, "is vastly different from the world we think we live in." The title refers to how everyone simply assumed that swans were white, just because no one had seen the birds in other colours. Then, black swans were found in Australia. It is not what you know, Taleb contends, but what you do not know, that can hurt you.

It turns out that what the world did not know about securitisation, subprime mortgages and sliding stock markets hurts badly. At the Emirates Airline International Festival of Literature last month, a few hundred people clutched copies of The Black Swan, some clearly well-read, others newly purchased. Each seemed to be seeking an answer to the same question: what happened? "They thought they knew more than they did," said Taleb, a former Wall Street financier turned best-selling author.

"They" are the wizards of Wall Street, eagerly evangelising the new economy of easy credit. Taleb never subscribed to the formulas and investment recipes concocted by financiers. Not everything, he says, can be reduced to an equation. "[Maths] works well for linear physics. It doesn't work that well for the weather." In the post-mortem of the credit-fuelled boom, Taleb continues to be especially critical of Alan Greenspan and Ben Bernanke, former and current chiefs of the US Federal Reserve Bank. He says they bear large responsibility for not recognising the minefields waiting to explode under the US financial system.

Taleb writes that figures such as Mr Greenspan are "turkeys", people who believe what will happen is based on what they have already seen happen. The former Fed chairman was so well fed by Wall Street, he was unable to discern that "the same hand that feeds you can be the one that wrings your neck". "I lost my mind when I saw Bernanke," Taleb says. "It's as if after a plane crashed, we gave the pilot a new plane to crash again."

When The Black Swan was published in 2007, many dismissed the author as a killjoy, refusing to join the party. A year later banks started failing, jobs started disappearing and households began to fear for the future. Taleb then emerged as an oracle. Consider what he wrote even before the boom went bust: "Globalisation creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words, it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial institutions have been merging into a smaller number of very large banks.

"So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks - when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crises less likely, but when they happen they are more global in scale and hit us very hard. "True, we now have fewer failures, but when they occur ?. I shiver at the thought." The Black Swan is now a regular fixture on best-seller lists and an Arabic version is in the works.

Taleb spent his formative years dodging bombs during the Lebanese civil war in the 1970s. But he does not call himself Lebanese, instead using the regional identity Levantine. At his Dubai appearance, he spoke mostly in Arabic. On Black Monday in 1987, when the Dow Jones dropped 20 per cent - still the largest single-day percentage drop in history - Taleb made a fortune. That day provided him the money to transform from financier to philosopher.

Act two of Nassim Nicholas Taleb does have its inconsistencies. Here is a man who thinks newspapers and television are a waste of time, yet his website is crammed with links to news stories about him. He bears the pedigree of Wall Street's brightest - an MBA from the prestigious Wharton School at the University of Pennsylvania - but rails against the institutions of capitalism. "I am trained as a mathematician so I can tell you: mathematicians are frauds," says the member of the Derivatives Hall of Fame.

His appearance in Dubai itself is a contradiction. In The Black Swan he wrote: "Las Vegas (along with its sibling, the emirate of Dubai) is perhaps one place I'd never wish to visit before I die." An audience member asked him what changed his mind. He said he didn't: "Dubai changed." He does not offer further explanation. He is not fond of explaining himself. Days after his appearance, I sent him an e-mail, seeking clarification on biographical points I had put together from various internet sources, including his website. He wrote back to say I had it "completely wrong", but did not clarify.

Pressed, he says he does not give out dates, that he does not "believe in timelines". He says: "I am mostly a scholar not a business man/financier." Next up for Taleb is a book on tinkering or "how to live in a world we don't understand". The Arabic world, in particular, could provide a template for the West in finding a balance between leverage and risk. "Arabic societies are more attuned to deal with black swan phenomenon," he says. "They were saying 'I don't know', 'we don't know'."

Well, maybe not Dubai. But Taleb will not be drawn into a discussion about the city's fortunes. Instead he says: "The US is a vastly more fragile society." He dismisses critics who accuse him of being a nihilist, someone keen only to tear down the current economic system. "I'm just telling people to be cautious," he says. "I'm using this reputation to change this society so it can be more robust and not be susceptible to black swans." ashah@thenational.ae