Index

14   From Collapsed Refinancing and Highway Bridges to Systems Theory

W.K.

We are very critical of financing on the basis of structured risk, when the creators of these models close their eyes to the independent perils that lurk beneath their basic concept of value as an automatic balancing of supply and demand. Elsewhere in this issue I deal with the close parallel of the collapse of a highway bridge in Minneapolis and the collapse of the connection between the subprime lenders and the banks who normally bridge the financing of subprime mortgages from the financial companies that write them to the ultimate investor who buys them. The latter is served up an assortment of "swaths" of risk from the many loans supposedly to meet his needs — much like a customer buying a collection of jellybeans put together to suit his preferences in flavour and colour.

But the analogy still does not stop there. The Wall Street Journal (17/08, "Let’s Rebuild America Together" by Harold Ford Jr. and Jim Hall) informs us: "The collapse of the I-35 bridge in Minneapolis is the most recent tragic development in a series of events highlighting the decrepit status of our nation’s vital infrastructure.... Our road and highway network becomes increasingly congested with each passing year. Congestion costs Americans more than $1 billion annually in lost wages and added gasoline costs. This rapid growth further encumbers our already overburdened road, highway and bridge capacity, thereby jeopardizing public safety."

But the economic models and accountancy used by our governments report "growth" identified with an increasing Gross Domestic Product. Indeed, that is swollen by the actual collapse of the bridge and whatever other road accidents may be caused by such congestion. They will even push up interest rates to guarantee that so much success doesn’t cause inflation. And the higher interest rates provide yet another seemingly sound reason for delaying looking after our maintenance of roads. But not only roads.

Economic Bliss Through Congestion

Let us return to the source quoted: "But these problems are not unique to ground transportation. Airline delays this summer have reached a record high in the 13 years since the FAA first began collecting these statistics. New York Kennedy and Washington Dulles are projected to see increases in passengers upwards of 505 by 2020, Runway air traffic control and navigation systems are already operating at capacity."

The article goes on, but our readers will get the pattern. From it emerges that when we note the increase in the world’s population, and hail that as a sign of growth and progress, that is what we should classify as a bit of "subprime information." And if we base our insurance policies on such a misconception of social risk, we will end up with a misleading swath of these unsorted figures. If it were bees that we were counting for our statistics, we would most certainly distinguish between those who spent most of their time sipping the nectar from local blooms and retiring to their hives to produce their honey, and those vicious hornets that covered long distances stinging innocent people perhaps fatally en route.

Humans, however escape the distinction between those who run up ever greater mileages from those who used to spend most of their time with little beyond local traveling. Most immigrants who came to North America did not expect to set eyes on their native lands again. I remember in an emigrant ship in Naples harbour over a half century ago emigrants weeping because they did not expect to see again their native land and the relatives they had left behind.

What we are confronted with can only be handled by systems theory. All independent problems created by what passes for "economic growth," would be seen as subsystems that would have to be addressed by our statistics, our accountancy, so that we may develop policies to deal with them. Clearly the congestion at airports shows how population habits will have to fit within the transport system safely. For that is a higher system, but still a subsystem of the environment. The capacity, the technologies, and the economic subsystems are reconciled with the constraints of adjoining subsystems and of higher systems that must take priority, or we shall end up victims of failed subprime gambles in non-financial fields.

W.K.

– from Economic Reform, September 2007

Next