Saturday, January 11, 2014

Too big ...

Strong statements by governments and the media say that the failure of this or that financial giant could be a tipover point for the world economy.  The failure of AIG, for example, would cascade throughout the world down to the last person.  None would be left unscathed.

OK, that's an interesting perspective.

From a Wikipedia article:
The "too big to fail" theory asserts that certain financial institutions are so large and so interconnected that their failure would be disastrous to the economy, and they therefore must be supported by government when they face difficulty.[1] ... popularized by U.S. Congressman Stewart McKinney in a 1984 Congressional hearing, discussing the Federal Deposit Insurance Corporation's intervention with Continental Illinois.[2] ... Proponents of this theory believe that some institutions are so important that they should become recipients of beneficial financial and economic policies from governments or central banks.[4] ... The global economic system must also deal with sovereign states being too big to fail.[5][6][7][8] Opponents believe that one of the problems that arises is moral hazard whereby a company that benefits from these protective policies will seek to profit by it, deliberately taking positions ... that are high-risk high-return....[9] The term has emerged as prominent in public discourse since the 2007–2010 global financial crisis.[10] Critics see the policy as counterproductive and that large banks or other institutions should be left to fail if their risk management is not effective.[11][12] 
Some critics, such as Alan Greenspan, believe that such large organisations should be deliberately broken up: “If they're too big to fail, they're too big”.[13] More than fifty prominent economists, financial experts, bankers, finance industry groups, and banks themselves have called for breaking up large banks into smaller institutions.[14]

So, most agree that the characterization is correct, but not all agree on what we should do about it.  If the corporation is a threat to the nation, are there reasons to NOT regulate that threat?  That's been the response so far.

Is it just these financial business behemoths that pose the risk?  Or is there more to the underlying causes?

From our history ... of communities, of cities, of civilizations.  The progressive complexity of their interrelationships over the years shows breakdown points where some or all suffer.  Competition for resources, for room to live, for power, all have affected the masses detrimentally.  In each case, the first trigger point for difficulty seems to be population density.

Not every location is viable; population concentrates in favorable regions rather than being spread out evenly.

Where communities were small and separated by distance, there was no inevitable conflict.  Where resources were sufficient, there was no destructive competition.  Communities along the Niger River lived in cooperative peace for more than a thousand years.

In regions of dense population however, demands of consumption overtasked the local carrying capacity. Class systems exploited the masses. Power players would compete to come out on top. Consumption would strip the land of trees, aggressive farming would exhaust the land, and overfishing would decimate the sea life.  Trying to make more out of less brings intense competition, risk, and eventual collapse.  Or war.

That's the history we see with population density being the underlying and perhaps first enabling factor.


World population rose to three, four, five, six and now seven billion just in my lifetime, and it's concentrated, not spread out. In 2008, we crossed a threshold; half the global population now live in urban areas. Fifty years ago it was 30%. A century ago it was 10%.

Following population density, in every case of failed civilization, it appears that there were two identifiable players; government and big business (or their contemporary equivalent).

We note the acceleration of destructive play in those two realms today. Increasingly, governments serve national business interests, ignoring the broader impact. This is perhaps the second trigger point. And now, the reality of globalization means the risks affect us all.

We face challenges today with population, climate change, water availability, and overfishing of the oceans. Globalizing processes change cultures, economies, national priorities, and the natural environment. The whole world is in play, and it's unprotected from either big business or government.

The immediate future holds challenges for us individually and collectively.  What long term and rational plan we might embrace?