Every financial system fails in the end

Article Highlights

  • All complex financial systems fail given sufficient time.

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  • The greater the belief in a financial system's success grows, the higher the probability of its failure becomes.

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Sir, John Kay’s excellent article “The design failures that lead to financial explosions” (Comment, November 13) needs only one edit.

He writes: “The lesson for financial services is that the attempt to design a system for zero failure is impractical.” That should be changed to “is mission impossible”. All complex financial systems fail given sufficient time. The greater the belief in their success grows (see “the Great Moderation”), the higher the probability of their failure becomes.

Alex J Pollock, Resident Fellow, American Enterprise Institute, Washington DC, US

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About the Author

 

Alex J.
Pollock
  • Alex J. Pollock is a resident fellow at the American Enterprise Institute (AEI), where he studies and writes about housing finance; government-sponsored enterprises, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; retirement finance; and banking and central banks. He also works on corporate governance and accounting standards issues.


    Pollock has had a 35-year career in banking and was president and CEO of the Federal Home Loan Bank of Chicago for more than 12 years immediately before joining AEI. A prolific writer, he has written numerous articles on financial systems and is the author of the book “Boom and Bust: Financial Cycles and Human Prosperity” (AEI Press, 2011). He has also created a one-page mortgage form to help borrowers understand their mortgage obligations.


    The lead director of CME Group, Pollock is also a director of the Great Lakes Higher Education Corporation and the chairman of the board of the Great Books Foundation. He is a past president of the International Union for Housing Finance.


    He has an M.P.A. in international relations from Princeton University, an M.A. in philosophy from the University of Chicago, and a B.A. from Williams College.


  • Phone: 202.862.7190
    Email: apollock@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: (202) 419-5212
    Email: emily.rapp@aei.org

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