Globalization Causes Interlocking Fragility

Given our current crisis, I would like to remind everyone of Nassim Taleb’s prediction- here is an excerpt from his book The Black Swan. I have also included a video of Taleb’s lecture on Fora.Tv:

“Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks – when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur … I shiver at the thought.” From Taleb, N. N. (2006). The Black Swan. (Accessed via Decision Science News)

Watch a video lecture of Mr. Taleb Talking about the Black Swan




About Miguel Barbosa

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10. October 2008 by Miguel Barbosa
Categories: Curated Readings, Risk & Uncertainty | Leave a comment

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