I am reading a book by John D. Barrows titled One Hundred Essential Things You Didn't Know You Didn't Know: Math Explains Your World (100 Essential Things). His discussion on thresholds of complexity had applicability to reaching solid decisions. Mr. Barrows notes that thresholds of complexity occur as complex situations are built step by step over time. In the end the overall structure is strikingly different than its local structure. The whole has a property not shared by its parts.
An analogy with the economic crisis can be made by looking at what happen to mortgages (given to many incapable of repaying), then resold, converted into various financial instruments and credit default swaps (CDS). The sellers of the CDS do not necessarily need to own the underlying security, have any capital reserves behind it or be regulated.
If I look at thresholds of complexity from a relational viewpoint and in reverse, I can see where there was a "whole" the single mortgage and as it was taken apart, it became more and more complex and had nothing to do with the original mortgage that had some security behind it (the home). The parts and the whole were nothing alike.
I know the economic crisis is much more complex and was caused by many factors. What I find interesting is that thresholds of complexity concept can be used as a way of thinking and analyzing to achieve better outcomes.
As you make decisions that are critical and have a large impact, look at the parts and the whole, ask if it makes sense, are there truly relationships that make sense as each part is put together or taken apart. Do they stay linked and add value. Look at it in reverse. Has it become to complex, thresholds of complexity reached and there is no value.
To tie this back into my example, and in a very simple form, if I look at a credit default swap that has no security behind it, no relationship what so ever to the original mortgage, no regulation of the CDS, it makes no sense. It reached a threshold of complexity and lost all its value as an investment.
