The twin marvels of truly awful weather and systemic market meltdowns have a lot in common. First they feed on persistent disequilibria in their respective systems – weather systems feed on temperature and pressure differentials which can only be resolved through long time frames for adjustment or short term violence – storms. Similarly, economic and financial disequilibrium tend to be founded on regulatory or information impediments, leading to persistent positive feedback loops – first running markets up, and then, inevitably, leading to collapse.

Metcalfe’s Law and the Issues of Social Network Valuations

The Great Recession is a rolling disaster that the world economy seemingly stumbled into in the spring of 2008 and continues most colorfully today with the slow motion train wrecks of monetary policy in the United States and the collapsing Euro. This rolling economic Verdun was born many years before in a series of ill-conceived and poorly understood policy initiatives championed by consumer advocates and industry groups alike. These reforms – generally characterized as deregulation – were targeted at the seemingly laudable targets of risk mitigation and fairness, and categorically achieved just the opposite.

The Bankruptcy Reform Act was aimed at changing the trajectory of consumer loan growth, but it probably continued the growth of consumer credit well beyond what was prudent. In reality, this legislative attempt at credit enhancement only served to drive lenders into the arms of the least prudent and credit worthy borrowers.