According to this source, the households that have the larger debts are those less likely to lose their income. Meanwhile, after the global crisis of 2008–2009, estimates suggest that the fraction of households in a situation of financial risk is around 4 percent, close to where it was in 2007. 1 Information made public point to severe problems in the corporate governance of this company, with irresponsible lending policies and major abusive deficiencies in the information on their credit portfolio that was delivered to investors and supervising organizations. It is also likely that the law has been broken with respect to the delivery of information and the operation of the lending activities. This has triggered a discussion over the role that different organisms should have played, including management, the board of directors, auditors and risk-rating agencies. Certainly there have been grave irregularities that need clarification. It is also necessary to establish any potential flaws of our regulatory and supervisory framework. I would like to say, however, that at this time we must let the mechanisms of supervision and sanction provided for in the laws governing the securities and stock markets do their work. Also, those responsible for the damages caused must be investigated and punished with all the rigor of the law for their wrongdoing. Episodes like this one should never occur again. This case brought to light two important flaws from which we must draw lessons in legislation, regulations and control. What we have now is obviously insufficient.
In short, diversification strategies by individual firms generated a lack of diversity across the system as a whole. So what emerged during this century was a financial system exhibiting both greater complexity and less diversity. Up until 2007, many participants in financial markets would have viewed that network evolution as the inevitable by-product of technical progress in finance. Until then, complexity plus homogeneity equalled stability. But in just about every non-financial discipline – from ecologists to engineers, from geneticists to geologists – this evolution would have set alarm bells ringing. Based on their experience, complexity plus homogeneity did not spell stability; it spelt fragility. In understanding why, it is useful to explore some of the wider lessons from those disciplines, taking in turn the effects of complexity and diversity on stability. Complexity and stability Tropical rainforests are a complex adaptive system. In the immediate post-war period, these eco-systems were often used as a case-study when demonstrating why complex systems tended to exhibit greater stability. 3 In Elton’s (1958) words, this was because there are “always enough enemies and parasites available to turn on any species that starts being unusually numerous”. Complexity strengthened self-regulatory forces in systems, so improving robustness. This was the prevailing ecological wisdom up until the early 1970s. That conventional wisdom has since been turned on its head. From the 1970s onwards, orthodoxy was altered by a combination of enriched mathematical models and practical experience.