Archive for category Risk & Stability

Date: January 3rd, 2015
Cate: Finance, Risk & Stability, Systems

Systemic risk presentation to NYSSA dec 3rd

I was recently on a NYSSA (New York Society of Security Analysts) panel to discuss systemic risk with the Vice-Chair of the world’s largest asset manager and specialists from the US treasury and the center for financial stability.  Here is my presentation putting the 2007-2009 credit crisis into a 400 yr historical perspective.

Date: September 20th, 2012
Cate: Finance, Risk & Stability, Systems

Organizationally induced catastrophes by Charles Perrow

Charles Perrow is an excellent and original systems thinker.  Perrow’s book Normal Accidents should be required reading for engineers, designers and anyone responsible for the safety and risk management of a large system, physical, financial or social.

Perrow’s understanding of tight coupling, contingency, complexity and hidden paths in systems is top notch. He uses real world examples to bring these concepts to life.  One thesis posited by the paper is that as small systems integrate and become tightly coupled they form a larger discrete system which becomes prone to collapse and catastrophe than the original smaller isolated systems. Integration of this type in pursuit of economic efficiency, power and influence leads to the ultimate collapse of a large system.

The implicit argument is that decentralized (federated/discrete) systems are longer term stable and resilient than monolithic systems.  Historical and contemporary study of overly centralized homogenous governments, banking and social systems tightly coupled acting in unison provide numerous examples of this critical failure thesis.

My personal concern is the global unified banking risk system known as Basel 3.

Here is a paper Perrow posted many years ago. Some other of his papers can be found here.

Date: August 3rd, 2012
Cate: Risk & Stability, Systems

Geoffrey West gets complexity.

This is a great video, for those who have a little complexity background.  I just wish West would mention constructal theory.  Constructal theory talks about the structural changes required for various scaled flow rates.  I mention structural flow changs and innovations in my new book.

If someone can tie biology and constructal theory into the Fiegenbaum constant, that would totally rock.  It would be a nice systems theory for biology and evolutionary process. Most likely it could be incorporated with an entropy and dissipation model factor model.  Biology could become like a fuzzy form of physics both some homestatic and homeorhetic fuzzy boundaries and trajectories. Sweet!

If you dig this video, check out West’s TED talk. He definitely has a lucky “talk” shirt which serves him well in both presentations.

Date: July 24th, 2012
Cate: Risk & Stability, Systems

A great paper on how networks become brittle due to interconnection

This is a rare document which understands how networks function and how things are interconnected.  My own opinion is that the network of society is more resilient than illustrated and will bounce back, but the reality of cascading failures and overly centralized architecture are very valid.

This is a great document using the correct language of degraded performance, cascading failure and resiliance.  It is worth the read and highly educational.  Copyright warning, I have posted this is scribd, hoping it gets a larger audience. It is the work of Feasta.

Date: July 24th, 2012
Cate: Finance, Risk & Stability, Systems

Excellent video on complexity in finance and systems. relates CDS to oil rigs and normal accidents.

Ht to Farnam Street

An excellent introduction to tight coupling, feedback and systems.  The piece also includes normal accidents, safety systems leading to normalized risk and hidden paths in systems that induce risk.

Date: July 16th, 2012
Cate: Finance, Risk & Stability, Systems
1 msg

Non-normality and financial risk

Andrew Haldane at the Bank of England often presents information in very clear forms.  Here he attacks the normality assumptions found in many financial models.  The systems thinker will not be surprised.  Enjoy the paper, it is very good.