Don't Trust Anyone In A Tie.(International Edition; THE LAST WORD)(Nassim Nicholas Taleb)(Interview)

Byline: Rana Foroohar

Trader turned philosopher Nassim Nicholas Taleb would probably be the first to admit the role that chance played in his recent market gains. Though he no longer actively trades himself, the Santa Monica, California-based hedge fund he advises, Universa, has posted gains of between 50 and 110 percent in recent months, even as the S&P is down 40 percent. The author of the bestselling books "Fooled by Randomness" and "The Black Swan" bases both his trading strategies and his world view on the notion that extreme events--9/11, Iraq, the financial crisis--are the norm rather than the exception. Taleb, who predicted the current global-credit debacle several years back, shares his distrust of bankers and his advice to individual investors with NEWSWEEK's Rana Foroohar.

FOROOHAR: You come from a Greek Orthodox Lebanese family that suddenly lost its position and wealth during the war. Did this have an impact on your theories?

TALEB: I think it simply made me realize that the world is crazier than we think it is. For example, who would have guessed a few years ago that we'd have a Republican president nationalizing banks? Yet we'll go on, and not expect anything that crazy to happen in the future. And the more educated people are, the more likely they are to have those sorts of assumptions.

So how did we get into this financial mess?

It's 100 percent down to the shifts that occurred during the '70s and '80s, during the Reagan-Thatcher era, when Wall Street got big and pushed a culture obsessed with the bottom line, and convinced everyone to buy more stocks. Equities are good over the long run, but right now we are overexposed. People thought so much about the bottom line that they didn't put anything away as insurance. Along with a more dynamic economy came a culture of wild capitalism, and also a shift toward more computerized trading and financial modeling, which people think is scientific (because the guys who invented it won Nobel Prizes), but it really isn't. The risk models these hedge funds run aren't reliable. Business schools should stop teaching them.

Are M.B.A.s the problem?