Are Big banks less prone to failure? Is the monetary system not prone to failure? Lessons from nature.

The Opinion article in the Financial Times, entitled

The Birds and the Bees, and the Big Banks
By Andrew Haldane and Robert May
Published: February 20 2011 19:59 | Last updated: February 20 2011 19:59

Provides clues from nature that might offset the arguments used by the big banks to resist regulations obliging them to hold larger buffers of capital.

In a comment to this article, I draw the attention of other research that led multidisciplinary teams (including biologists), to argue that the present monetary system may well be prone to ever increasing instability, and that the measures that are being taken may well be “des emplâtres sur une jambe de bois” (literally plasters on a wooden leg).

It is interesting (but very alarming) to observe again and again that the intractable problems of our time are still not addressed from a higher level of thinking than the one who created them at the first place. Nothing has been learned since Einstein.

For those who wish to understand why maximizing efficiency leads to UN-sustainability, I refer to the articles from the team above: Follow the links http://ow.ly/40oZ5 and http://ow.ly/40p86

My concern: how can we make sure that we uplift our collective thinking and meaning making one level above its past levels?

Amplify’d from www.ft.com

The birds and the bees, and the big banks

Are big banks less prone to failure? The traditional economics of diversification suggest so. By scaling up balance sheets across different classes of asset, risks to portfolios will tend, on average, to cancel each other out. Aggregate balance sheet risk is dampened the bigger the balance sheet. Big banks thus benefit from a law of large numbers.

Complex systems – those found in nature, but also in finance – tell a different tale. Here, scaling up risks may cause them to cascade rather than cancel out. The bigger and more complex the structure, the greater this risk.

The present situation in banking is in many respects perverse. The magic of diversification, when assumed into banks’ risk models, means that large, complex banks often hold less capital than their smaller, simpler brethren. The rocket-scientists building models tell us this makes sense. But the rocket-scientists building rockets tell us it is nonsense. This error has cost the world dear. Through this year, the Financial Stability Board is leading the charge to boost loss-absorbing capital for the largest, systemically important institutions to correct this error. It is right to do so.

Read more at www.ft.com

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Charles van der Haegen |
February 21 3:49pm |
Permalink

Very Interesting analysis.
In the same vein, I would draw attention to very interesting analyses of a multidisciplary team, (Lietaer, Ulanowicz, Goermer, Gomez) suggesting that the same laws that apply in complex ecosuystems also may apply on complex socialm systems, and may explain the lack of stability of the present monetary system as structural.
The question hence is, are we solving the right question? Or should we be looking at the problem from another level of thinking than the one that created the problem in first instance (paraphrasing Einstein)?

For more, see the articles: Follow the links http://ow.ly/40oZ5 and http://ow.ly/40p86

Read more at www.ft.com

 
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About charlesvanderhaegen

I am a grandfather of an immensely inspiring family, thanks to the most incredible wife. To satisfy my family's needs, I was for 30 years business entrepreneur, roller coasting between success and failure. 17 years ago I was forced to stop and reflect. I dug into theory and discovered the World out there, that my involvement in Business had kept hidden to me. I feared that I will not escape remaining amidst my trans-disciplinary quest forever, bouncing back and forth from action to theory, always puzzled by Europe's apparent incapacity to free itself from its Institutional/Technological Lock-ins. My horizon opened up when Gunter Pauly, my intimate friend of 35 years, asked me to join him and take charge ZERI's development in Europe. I am now fully engaged alongside Gunter Pauli in the http://www.zeri.org and the @myblueeconomy Networks as CEO of ZERI.EU vzw (Non for Profit association)
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