Monday, April 14, 2008
a demon of our own design
Interestingly enough, New Scientist cites the subprime mortgage crisis--I wrote here about the weird connections it was revealing--as a prime example of sheep-lopping. Instead of spreading the risk in the sense of dividing it up and minimizing it, our financial system is now so tightly wound that it spreads risk like a contagion--and if one segment of the American mortgage market gets sick, there is a worldwide credit crunch.
richard bookstaber makes this observation at length in his excellent systemic view of financialization. (his erstwhile blog here.) bookstaber recommends climbing off the ledge through regulation, but a part of me wonders if such tightly coupled specialization isn't an inevitable outgrowth of systemic behavior which makes crisis and collapse similarly unavoidable, in civilizations the same as markets.