Embrace Black Swans to Avoid Financial Disaster, Urges Taleb (Mark Gilbert)

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``We have never before lived under the threat of a global collapse. The financial ecology is swelling into gigantic, incestuous, bureaucratic banks -- when one falls, they all fall.''

By Mark Gilbert

April 20 (Bloomberg) -- A slump in Chinese stocks Feb. 27 triggered the worst week for U.S. equities in more than four years and the biggest one-day jump in volatility ever -- the financial equivalent of a butterfly's flapping wing in New Delhi causing a hurricane in North Carolina.

In ``The Black Swan: The Impact of the Highly Improbable,'' Nassim Nicholas Taleb argues that we are dangerously blind to the possibility of unlikely events, and reluctant to accept their unpredictability when they do occur. It is a seductive thesis.

A Black Swan, in Taleb talk, is an incredibly improbable event with a colossal impact, be it 9/11 or the rise of Google Inc. Our response to such events is to rationalize them, making them appear more predictable than they are, the author argues. In short, we kid ourselves.

Our global economy gives ``the appearance of stability'' even as it ``creates devastating Black Swans,'' he says. ``We have never before lived under the threat of a global collapse. The financial ecology is swelling into gigantic, incestuous, bureaucratic banks -- when one falls, they all fall.''