Nov. 4 (Bloomberg) -- Companies that become too big, complicated and debt-ridden should be allowed to “creatively destruct,” said Nassim Nicholas Taleb, author of “The Black Swan.”

Governments shouldn’t rescue firms that become too big to fail because that rewards incompetent actions and adds to deficits, Taleb said yesterday. When regulators become involved in the financial system, they tend to protect the largest businesses, he said.

“Why is it on land you don’t have an animal bigger than an elephant?” Taleb asked at the Aspen Institute’s “Capitalism and the Future” forum at the New York Public Library. “Because Mother Nature knows it’s too big to fail.”

Taleb argued in “The Black Swan: The Impact of the Highly Improbable” that history is littered with rare events that can’t be predicted by trends. The best-selling book came out in 2007 before the global credit crisis sparked an economic slump and $1.66 trillion of losses. U.S. debt has risen to $11.98 trillion, according to Treasury Department figures, after bailouts of companies including automakers and Citigroup Inc.

Taleb, a professor of risk engineering at New York University, is also a principal at Universa Investments LP, a $5 billion hedge-fund firm focusing on protecting investors against stock-market crashes and hyperinflation.

“Companies, when they get too big, become fragile,” Taleb said. “You have rising complexity and rising fragility. At some point that’s going to blow.”

He said that if companies go bankrupt to get rid of debt instead of being bailed out, there will be less incentive for executives to take excessive risk.

“We’re not destroying debt,” Taleb said. “When you move it into the government, it stays in the government and that’s a problem.”

To contact the reporters on this story: Mary Childs in New York at mchilds4@bloomberg.net; Lynn Thomasson in New York at lthomasson@bloomberg.net

Last Updated: November 4, 2009 00:01 EST