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'Incompetent' Leaders Pose Threat to Recovery: 'Black Swan'

Published: Wednesday, 12 Aug 2009 | 9:36 AM ET

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By: CNBC.com

Incompetent policymakers are to blame for a financial crisis that will continue until substantial changes are made, author Nassim Taleb, known as the "Black Swan," told CNBC.

Nassim Taleb
Photo by: YechezkelZilber
Nassim Taleb

Taleb, principal at Universa Investments and coiner of the "Black Swan" term to explain drastic, unpredictable events, said in a live interview that choking debt, continued high unemployment and a system that rewards bad behavior will hamstring an economic recovery.

"It is a matter of risk and responsibility, and I think the risks that were there before, these problems are still there," he said. "We still have a very high level of debt, we still have leadership that's literally incompetent ..."

"They did not see the problem, the don't look at the core of problem. There's an elephant in the room and they did not identify it."

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Pointing his finger directly at Fed Reserve Chairman Ben Bernanke and President Obama, Taleb said policymakers need to begin converting debt into equity but instead are continuing the programs that created the financial crisis.

"I don't think that structural changes have been addressed," he said. "It doesn't look like they're fully aware of the problem, or they're overlooking it because they don't want to take hard medicine."

With Bernanke's term running out, Taleb said Obama would be making a mistake by reappointing the Fed chairman.

"Bernanke belongs to a school of economics that is not in synch with the complex system," he said. "By having Bernanke there you're rewarding failure."

Taleb has earned a reputation as a market bear and sage following the publication of his 2007 book, "The Black Swan," that in part warned that banks were susceptible to failures beyond what models could predict—hence, a "black swan" type of rarity. The collapse of the financial system happened shortly thereafter.

He said he doesn't consider himself a pessimist, but is worried about a system that provides tax breaks to failing businesses and rewards, through the "Cash for Clunkers" program, people who bought gas-guzzling vehicles and don't want them anymore.

"It's not pessimism. I'm warning against a lack of understanding of the disease," Taleb said. "Now sometimes you see patients doing very well and they have cancer. Long-term, I'm not comfortable treating a patient for his headaches when he has lung cancer."