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19 April 2024

Being right when the rest of the world is wrong

By Nic Ridley

Popular culture is littered with aphorisms about 20/20 hindsight, but the most appropriate for today's troubled world is quite possibly: "Hindsight explains the injury that foresight would have prevented".

This quotation, attributed to 'anonymous', encapsulates, albeit in simple terms, what could have been done to prevent the collapse of the global financial order, if only warnings were heeded. And nobody's warning was more loud and clear than that of author and scholar Nassim Nicholas Taleb.

His seminal work, The Black Swan, suggested that inherent flaws in high-finance would eventually lead to its systemic collapse – and this was more than a year before Lehman Brothers sank.

In fact, he also singled out serious flaws in the Fannie Mae – the Federal National Mortgage Association – business model, and then that soon after had to be bailed out by the US government.

The Black Swan has sold more than one million copies worldwide and made an intellectual superstar of its author – he is now one of the most in-demand thinkers on the speakers' circuit.

But whether this financial heavyweight takes any joy out of being right is a question only he can answer. What he does say, using words of ill-disguised anger and disbelief, is an open criticism of the world's banking giants and the governments which allowed them to grow with minimal regulation.

Taleb, in Dubai for the recent literary festival, pulled no punches: "Governments let these banks get big but didn't allow natural selection to act on them – thus they are fragile to change.

"According to me, let everything that's fragile break, it makes the rest robust.

"Banks took risks beyond their capacity because they couldn't say 'I don't know'. Failure was not an option.

"I don't have a better method [to deal with the situation]. But unlike the West, I have the ability to say, 'I don't know'."

Despite the success of The Black Swan – both the book and its integral theory of large-scale unpredictable events – Taleb is not without his critics.

Whether they pour scorn on him because he has been proven correct – through either foresight or serendipity – or because of his "audacity" to launch a verbal attack on historically untouchable financial behemoths remains to be seen.

Ultimately, for everyone who predicted the collapse – Taleb among them – there are countless scores of big-brained academics and bankers who didn't, pretty much rendering the term "financial expert" redundant for the future.

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