Pond life: understanding the ecology of the financial crisis

October 27, 2008

Bankers have already had a barrage of abuse, so an article in New Scientist comparing them to pond life will perhaps raise few eyebrows.

But it is worth a closer look.

The popular science journal cites experts in complexity and ecology in its latest edition explaining how the financial system is a tangled network of relationships, like the ecosystem of a pond.

Normally, life ticks over just fine. But then the wrong set of circumstances - an explosion of algae, perhaps – trigger a change, throwing the whole community of life forms off balance. The result is a stagnant, smelly swamp.

“Slow changes have been accumulating for years, such as levels of indebtedness. None on their own seemed big enough to trigger a response,” says Johan Rockström of the Stockholm Environment Institute. “But then you get a trigger – one investment bank falls – and the whole system can then flip into an alternative stable state, with different rules, such as mistrust.”

2 comments

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It is my belief that in evaluating the present value of mortgage related securities, we need to identify fairly finitely – when we deviated from sound lending practices.

We can then try to make reasonable projections of what mortgages values might be today utilizing reasonable indices of annual increases consistent with what the pattern was back then.

Posted by David U Ewing-Chow | Report as abusive

The Human Illusion…

As long as humans think they are above nature, they will never learn…..

Posted by Jack Michigan USA | Report as abusive