"Slow down," Nassim tells me as we walk towards the Luxembourg gardens from Odeon in Paris this afternoon, "You're walking too fast."
The former trader-turned-author had said the same words to me the first time we walked and talked together across Ile de la Cite a few days before the mathematician, Benoit Mandelbrot, to whom his best-selling book, The Black Swan is dedicated, passed away. (Disclaimer: Taleb's book has absolutely nothing to do with the recent Aronofsky ballet film, though Taleb said that absurdly the film's release had seemed to increase book sales.)
Calmly taking it down a notch to more of a stroll, the often admired and sometimes despised author explained how physical exertion should follow a pattern of the juxtaposition of slow walking with intense strength training. It comes down to robustness. He has extrapolated this to our financial markets, which also need to be robust, to survive and thrive, even in the presence of the inevitable Black Swan event. That doesn't look like where we are right now in the West. We are not only less than robust, we appear to be rigged to blow up in ways that are undermining America more than any "foreign" terrorist ever did. This frail architecture is American-made and has been exported around the world via virtual-reality-type financial products which next to no one understands, are next to impossible if not indeed impossible to unwind, and which represent debt that has next to no chance of being repaid.
There is not only no robustness, there is no there there.
Taleb has recently taken a step back, away from the media spotlight these past few months, following an intense period of media appearances as a result of the financial crash of 2008, where it was proclaimed that his 2007 Black Swan book had foreseen the disaster to come. He prefers now to edit books of citations, read the classics, lunch with philosophy professors, teach and recharge. One of his latest works, The Bed of Procrustes, is not officially about finance at all, but full of "philosophical and practical aphorisms." On occasion, as he did in Paris, he speaks to groups of bankers, economists, and the odd journalist. As we continued at a snail's pace to make our way from Luxembourg towards the Sorbonne, where he offered me a dictionary of Latin and Greek quotes from a famous philosophical bookstore (in France The Black Swan sells in the Philosophy section, not filed under Economics), he explained why he had turned from markets to penning aphorisms such as:
"The person you are most afraid to contradict is yourself."
"The best revenge on a liar is to convince him that you believe what he said." (This is one of my favorites.)
"Procrastination is the soul rebelling against entrapment."
And perhaps the most important:
"What I learned on my own I still remember."
I also attended a more official event, where Taleb spoke to bankers, economists and a mostly male audience of the financial French establishment. As Taleb spoke, these men listened to his assertion that "optimization" does not play out, neither in financial markets nor in biology. If an optimist (and not God or some more intuitive evolutionary process) had designed the human body, we would have one not two kidneys, as we do not actually need both of them. The mathematical formulas and algorithms put in place by banks to monetize every millisecond milli-transaction and squeeze profits out of them and our ever-increasing interconnectedness mean that a small unforeseen event now ripples around the world faster than the next banker has the time to take out his Blackberry and check the markets. In fact, says Taleb, it was precisely the access to a Blackberry in the hands of investors and bankers around the world that allowed for the crash in the first place. Interconnectedness and technology has made us more fragile, not more robust. Walking too fast, instead of strolling at a leisurely pace, has proven deadly as we missed so much along the way, passing by too quickly, while the bubble was growing ready to burst. But this latest financial crisis is not that unusual, and it is not just a repeat of the Great Depression, but rather something worse, as we are now less robust than we were back then, and more interconnected in ways that allow this lack of robustness to ripple around the world so quickly that the Ponzi schemes collapse all at once.
Nobel prize-winning economists, hired by hedge funds and banks, were stamped with authority that allowed them to create his mess in the first place. Taleb even claims on his website, www.fooledbyrandomness.com, that the Nobel committee, which voted for the Economics Prize (not an official original Nobel, by the way, but added decades later), should be held liable for having placed the stamp of approval on these men in the first place.
Taleb has been criticized, but he tells it as he sees it, whether or not everyone agrees. He is taken seriously by everyone from the UK's David Cameron to politician Ralph Nader. Not to mention NYU Polytechnic Institute, which granted him Distinguished Professor status. Yet he falls somewhere between academic and finance guy, his approach to both is philosophical.
In the end, Taleb said, risks can indeed still be taken but they must only be taken by those financial groups robust enough to withstand heavy losses from Black Swan-type events. And we must protect those who are not able to protect themselves. Society at large should not be paying for and saving too big to fail banks nor any financial groups that take risks for which they are not designed.
Taleb and I said goodbye down Boulevard Saint Germain and I watched as he walked slowly back towards his hotel to take a nap. As he walked very slowly yet with a determined pace, back towards the heart of the Left Bank and St. Germain des Pres, I was reminded of his aphorism:
"To become a philosopher, start by walking very slowly."
And so he has.
Read his latest book, which began as notes added to The Black Swan, and appropriately entitled, Force and Fragility. I would also suggest that people read Technical Papers Associated with The Black Swan: The Impact of the Highly Improbable (2007-2010) at www.fooledbyrandomness.com/Technicalpapers.pdf.
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