Nassim Taleb Sees More Black Swans

Nassim Taleb, author of “The Black Swan,” and risk management expert told CNBC Thursday that the financial system is crashing and action must be taken by the US government to convert debt into equity to produce a more stable environment.

Taleb said on “Squawk Box” that “You may have green shoots, whatever you want to call them, you may have temporary relief, but you are still in a world that’s breaking,”.

According to Taleb anything that’s fragile like the financial system will eventually crash.

“We’re in the middle of a crash,” Taleb said. “So if I’m going to forecast something, it is that it’s going to get worse, not better.”

The government needs to deleverage debt and not try stimulus packages that will inflate assets, he said.

“What makes me very pessimistic in not seeing any leadership or awareness on parts of government on what has to be done, which is deleverage $40-to-$70 trillion,” Taleb said.

“The monkey on our back is debt,” Taleb forcefully added.

As an example, Taleb said banks should not be sending demands for larger and larger sums from homeowner in arrears on their mortgage. Instead the bank should offer to lower the monthly payments in return for part-ownership of the property.

“People would be able to start from scratch on a healthy basis. You don’t want to wait for foreclosure,” he said.

Taleb is best known for forecasting the black swan events in the housing market and with the banks overleveraging in making risky investments (which were not actually black swans as the disasters were subject to being forecast but no main stream economists was willing to do it) that lead to the current financial crisis. IMHO Green shoots are more in Ben Bernanke’s imagination than in the real economy. Taleb is one guy who got it right that you need to be listening to.

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