Wednesday, December 09, 2009

Fragility and Resilience

Non-resilient systems are prone to rapid devolution or collapse. The same can be said of structures, enterprises, governments, people, values and institutions.

Yesterday I focused on the tremendous financial fragility of many American households. Being unable to put your hands on even $2,000 in an emergency might well be a definition of household financial fragility.

I address structural fragility, vulnerability and resilience at length in Survival+because resilience is a key attribute of sustainability. We cannot speak of sustainability without considering resilience, for a fragile system is only sustainable in the short-term and at great cost.

Resilience and fragility are largely commonsense. A financial system with 1,000 independent banks is more resilient than one with six mega-banks which are "too big to fail" and hence guaranteed to fail. A family with three sources of income is more resilient than one with a single source, and a household in which all three incomes are earned at the same enterprise is less reslient than one with three incomes from three independent sources.

Six huge banks which are all interdependent via credit default swaps and other leveraged derivatives are almost infinitely more fragile than 1,000 smaller banks which are independent of each other.

Certain characteristics add or detract from a system's resiliency.

Transparency adds, obfuscation and lies detract, as they destroy trust and legitimacy.

Mutual benefit adds, benefitting only a tiny Elite detracts.

Extraction of wealth from the community and exploitation of its people detract, as institutions which do so are dependent on fragile systems of dominance and control.

Leverage and debt both dramatically increase systemic fragility. Savings and capital increase resiliency.

Inner strengths such as integrity, faith, and goals are resilient; inner weaknesses such as greed, self-absorption and lack of integrity are fragile.

Shared goals create resiliency, a welter of competing self-interests leads to fragility.

Taken together, these attributes help us understand why the status quo in the U.S. is so extremely fragile, from the household level to the highest levels of government.

Financial leverage, power and control have been concentrated into a few hands which have exploited the citizenry without limit. Were it not for their corrupted, venal and deeply stupid protectors in Congress, Treasury, the Fed and the Obama administration, Wall Street and the "too big to fail" banks would be torn down like the Bastille by an enraged public tired of being debt-serfs.

Just as over-leveraged banks are fundamentally insolvent, so too are over-leveraged households fundamentally insolvent.

A culture dependent on lies, obfuscation and propaganda is terribly fragile, as the truth eventually topples all seemingly invulnerable fortresses built on half-truths and outright lies. The same can be said of individuals who have constructed their lives on artifice, dishonesty, denial and self-absorption.

Systems dependent on extracting weath from the many to enrich the few (the plantation model of debt-serfdom, in our present economy) are vulnerable to sudden collapses of the status quo.

Systems which have lost their legitimacy and the trust of their participants are extremely fragile. I would count the entire U.S. financial sector and economy and much of its governanc as among those systems which are intrinsically vulnerable to rapid devolution.

As noted in Absolutely Nothing Has Been Fixed, nothing is being done to introduce truth or bolster legitimacy. Instead, the touting of phony statistics and bogus "reforms" only speed the erosion of what legitimacy remains.

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