Is Mubarak Egypt's 'black swan'?

It took a few days for Egyptian President Hosni Mubarak to calculate his next moves, and when the decision came the strategy was predictably an "old school" approach to a modern-day governmental challenge sparked by social media.

In power for three decades, no one expected Mubarak to present an "I got it" moment. He chose a right hand man as vice president, Omar Suleiman, who literally saved his life after an assassination attempt. The "big boss," as many in the former government and business community refer to him, sacked his "new school" cabinet of reformers. Then-Prime Minister Ahmed Nazif and his four key ministers representing trade, finance, telecommunications and investment were highly regarded in the global business community and trusted faces at the World Economic Forum each winter in Davos.

The act by the president to sack the "new school" reformers sends the wrong signal to global investors and some of the Egyptian corporate brand names that have become well known beyond their borders. Even if he survives the uprising by Egyptians on the street, nearly all the progress made over the past five years goes out the door - not to mention the impact on the tourism sector which is the country's number one foreign exchange earner.

Often overlooked in the rush of history and protests, since 2005, the prime minister and his team pushed through a laundry list of economic reforms and cut through Egypt's famous red tape. Their government branding was "Egypt: Open for Business," and it worked. $47.5 billion dollars of foreign direct investment poured in over five years. The big global brands flocked in, wanting access to this market of 80 million consumers and a low cost, multi-language workforce. They believed the business environment was changing for good. They might be mistaken.

In the halls of the Davos conference center I spoke to a dozen regional and global business leaders to get an "on-camera" response after the president's decision. Not one wanted to be on the record, but they all shared their views. One highly respected businessman from the Gulf said Mubarak should have communicated much earlier. "I am worried," he said. "This was handled miserably." A usually reserved regional central bank governor was even more critical, saying, "This ageing leadership is disconnected from reality."

I struggled against an army of Angela Merkel's bodyguards in the conference hall only to get a firm rejection of no reply from the German chancellor. Turkey's Deputy Prime Minister Ali Babacan said, “The situation is so tricky I don't even want to talk about it."

Egypt and Turkey have roughly same-sized populations, but that is where the similarities end. Turkish Prime Minister Recep Tayyip Erdogan of Turkey is presenting his ideals of a modern Islamic society to the world, including freedom of speech and much more voice for citizens in carving their destiny in a real democracy.

Turkey's finance minister Mehmet Simsek told me that the government's number one priority has to be raising the standard of living for all. In Egypt, millions struggle to join the middle class with reforms still too young to reach all rungs of society. This is a failure that lands squarely on the desk of the man in charge, the president. He started economic reforms in the 1980s but stopped the process when the going got tough. It is fair to say he probably regrets that decision now.

Since this latest attempt at reforms, per capita income nearly doubled from $1,200 in 2005 to just over $2000 today, but Turkey's per capita income is four times the size of Egypt's. And as U.S. Secretary of State Hillary Clinton noted when the news broke this week, economic reforms need to run in tandem with political and human rights reforms - something Mubarak obviously does not agree with, despite the overwhelming evidence against his strong-armed approach.

I spoke to best-selling author Nassim Taleb on the phone who wrote the famous business book the "Black Swan," which identifies situations that have mathematical multiplier effect due to their unforeseen power. In the 2008 banking crisis it was $60 trillion of exposure to vast leveraged debts that the financial system could not handle.

Taleb says the U.S. government made the same mistake with Mubarak that it has done with its large scale banks. It has funded him since the peace accord with Israel, so much so that he became too big to fail, and the only choice now left is to bail him out against the will of Egyptians themselves. This may buy some time, but similar to the massive exposure of a Lehman Brothers, Mubarak may very well turn out to be the next black swan.