A Lebanese Technology Transfer - Nassim Nicholas Taleb

Nassim Nicholas Taleb

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A Lebanese Technology Transfer<br>Notes on a blowup

Nassim Nicholas Taleb<br>Aug 07, 2026

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Postface to Abi-Rached and El-Richani’s Lebanon: Anatomy of a Collapse<br>I would like to repeat an aphorism that Lebanon has twice the qualities found in the Mediterranean world, but twice the flaws. This can generalize beyond the Mediterranean: Lebanon can be a place to study both societal functioning and its maladies.<br>For the Lebanese crisis under discussion in this volume appears to be a rare confluence of three ailments hitting a country as if by some conspiracy of providence. And by some divine coincidence, the solution is also found in Lebanese (more generally North Levantine) history.

This author, who grew up in Lebanon (and never really left it socially and intellectually), happens to specialize (in both academic research and business activities) in these exact three major ailments –though applied to Western societies and financial markets. By a curious technology transfer, yours truly generalized from Lebanon and applied overseas.<br>Primo, there is what one can call the carry trade (or the active concealment of risk under the rug); secondo, there is the risk transfer between agents (skin in the game ); and, tertio, there is the fragilization of an economy by stifling the market signals and dampening its natural intellectual and business fertility. And what is the remedy? The building of a system along the lines found in Lebanese history, something called antifragility.<br>The “carry trade” is as follows. Start producing steady returns while hiding some tail risk in the corners. People will invest. Keep going. Then they will invest more. At some point, some will give you all their savings. Then the greediest (and risk-blind) will blow up and nobody will hear of them. Owing to the survivorship bias, their losses will be both absent from the collective consciousness and, worse, from much of the salient record. Losers don’t write books (if they did nobody would publish them) and, as every financial statistician would confirm, dead entities are not listed in phone books, dead stocks are not easily found on Bloomberg lists, and the wisdom and the experience of bankrupt people isn’t found on the shelves of your local bookstore.<br>There are accounting and psychological explanations for the appeal of the carry trade as well as an inordinate amount of hidden moral hazard.

First, let us start with the way investors and depositors like to fool themselves with hidden risks that blow up on the occasion. Kahneman and Tversky showed empirically (see this author’s many interpretations1) that the value function (the equivalent to the conventional utilility in their framework) is concave in the gain domain and convex in the loss domain. This means that, hedonically, making small gains repeatedly and losing the bulk (and more) suddenly brings more psychological satisfaction than the reverse, that is, losing (or underperforming) continuously and gaining abruptly. This invites the selling of tail events for pennies.<br>Second, the moral hazard, the “crooks of randomness” effect, or the Robert Rubin Trade, covered in Skin in the Game. Robert Rubin, when he was the vice-chairperson of Citi, made close to a hundred million dollars in bonuses over a decade for a trading strategy that sells the tails and hence benefits from absence of volatility. When Citi lost everything and more from such fragile betting on the tails, all he had to do was invoke an unexpected event nobody foresaw, a “Black Swan after a (very) stubborn Lebanese author-trader”. And he kept his 100 million dollars and his Fifth Avenue apartment while the taxpayer had to directly and indirectly bail out Citi.<br>Recall that U.S. money center banks (including the very same Citi) lost every penny they ever made in their history on a single event, in the summer of 1982, from emerging market loans that defaulted collectively, something that convincingly shows that the Robert Rubin Trade is going to be repeated at some point in the future. Furthermore, the entire analytical apparatus of the financial economics establishment, based on the Gaussian distribution, deemed these strategies “safe”. A couple of “Nobel” laureates in economics (that is the Medal in honor of Alfred Nobel) were fooled by it as they blew up and lost their own fortunes, particularly in 1998 with the bankruptcy of Long-Term Capital Management. Likewise another “Nobel”, Joseph Stiglitz, deemed the tail risks of FNMA (which ended up with a blowup of 600 billion) as non-existent. For the economics establishment, the tails were deemed expensive, hence irrational to not sell –a belief that mysteriously lingered without any empirical backing.<br>Now something similar happened in Lebanon, couleur locale. Depositors were making steady income from the carry trade and fooled by it –it is remarkable how fooled investors like...