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Financial Whirlpools

Book Description

How do economists reconcile their expertise with their failures to predict and manage the 2008 financial crisis? This book goes a long way toward an answer by using systems theory to reveal the complex interdependence of factors and forces behind the crisis. In her fully integrated view of the economy, how it works, and how the economic crisis burst, Karen Higgins combines human psychology, cultural values, and belief formation with descriptions of the ways banks and markets succeed and fail. In each chapter she introduces themes from financial crisis literature and brings a systems-theory treatment of them. Her methodology and visual presentations both develop the tools of systems theory and apply these tools to the financial crisis. Not just another volume about the crisis, this book challenges the status quo through its unique multidisciplinary approach.



  • Presents a broad global view of international economic health and international corporate health
  • Describes how policies, regulations, and trends dating to the 1950s influenced the crisis
  • Assumes readers possess a general familiarity of economics and finance

Table of Contents

  1. Cover image
  2. Title page
  3. Table of Contents
  4. Copyright
  5. Preface
  6. List of Figures and Tables
    1. Figures
    2. Tables
  7. Biography
  8. Dedication
  9. Introduction: Systems Thinking and the Great Global Recession
  10. Part I: Foundations
    1. Chapter 1. Lines or Circles: The Basics of Systems Thinking
      1. 1.1 A Brief History of Systems Thinking
      2. 1.2 Application and Relevance of Systems Thinking
      3. 1.3 Linear Thinking and Systems Thinking
      4. 1.4 Complexity Economics and Systems Thinking
      5. 1.5 Systems Thinking Concepts
      6. 1.6 Loops
      7. 1.7 Lags: Time Delays
      8. 1.8 Limits to Growth
      9. 1.9 Levers: Points of Power
      10. 1.10 Visualization Tools
      11. 1.11 System Boundaries
      12. 1.12 Systems Thinking Philosophy
      13. 1.13 Summary
    2. Chapter 2. As the Gears Turn: Policies, Practices, Markets, and Risk
      1. 2.1 Timeline
      2. 2.2 Federal Economic Policies
      3. 2.3 Home Mortgage Lending Practices
      4. 2.4 Markets and Human Behavior
      5. 2.5 Housing Market
      6. 2.6 Financial Market
      7. 2.7 Risk
      8. 2.8 Systems Interpretation
      9. 2.9 Summary
  11. Part II: The Yin: Human Behaviors
    1. Chapter 3. Where Can I Buy One? Humans and the Economy
      1. 3.1 History of Human Psychology in Economic Theory
      2. 3.2 The Role of Values and Beliefs in Economics
      3. 3.3 The Role of Expectations in Economics
      4. 3.4 The Role of Human Nature in Economics
      5. 3.5 Summary
    2. Chapter 4. Who Are You Anyway? Values, Beliefs, Norms, and Behaviors
      1. 4.1 American Culture
      2. 4.2 Corporate Cultures
      3. 4.3 Systems Thinking Interpretation
      4. 4.4 Summary
    3. Chapter 5. Visions of Grandeur: Expectations and Behaviors
      1. 5.1 Expectations and the Economic Environment
      2. 5.2 Systems Thinking Interpretation
      3. 5.3 Summary
    4. Chapter 6. A Crisis of Human Proportions: Ethics and Behaviors
      1. 6.1 Mortgage Fraud
      2. 6.2 Disreputable Lending
      3. 6.3 Shady Corporate Strategy
      4. 6.4 Deceitful Dealings
      5. 6.5 Systems Thinking Interpretation
      6. 6.6 Summary
    5. Chapter 7. Self Speaks Loudly and Carries a Big Stick: Sources of Unethical Behavior
      1. 7.1 Ethics and its Purpose
      2. 7.2 Ethical Issue: Self-Interest Versus Social Interest
      3. 7.3 Human Nature Traits of Self-Interest
      4. 7.4 Societal Needs
      5. 7.5 Economic Environment
      6. 7.6 Repositories of Moral Grounding
      7. 7.7 Concern about Consequences
      8. 7.8 Greed and Hubris
      9. 7.9 Short-Term Narrow-Focused Rewards
      10. 7.10 Historic Precedence
      11. 7.11 Systems Thinking Interpretation
      12. 7.12 Summary
  12. Part III: The Yang: Economic Mechanisms
    1. Chapter 8. What Goes Up Must Come Down: The Housing Bubble
      1. 8.1 Bubble History
      2. 8.2 The Rise and Fall of the Housing Bubble
      3. 8.3 Affordability and the Housing Bubble
      4. 8.4 Supply, Demand, and the Housing Bubble
      5. 8.5 Reasons for Supply and Demand Shifts
      6. 8.6 Supply and Demand Shift Synopsis
      7. 8.7 Systems Thinking Interpretation
      8. 8.8 Summary
    2. Chapter 9. On Top of Debt Mountain: High-Risk Loans and Credit
      1. 9.1 Journey Segment One: Easy Availability of Credit
      2. 9.2 Journey Segment Two: High-Risk Loans
      3. 9.3 Journey Segment Three: Accumulation of Debt
      4. 9.4 Journey Segment Four: Defaults, Bankruptcies, and Foreclosures
      5. 9.5 Systems Thinking Interpretation
      6. 9.6 Summary
    3. Chapter 10. The Risk Tiger Pounces: Financial Market, Risk, and Securitization
      1. 10.1 Securitization, Structuring, and Derivatives in the Financial Market
      2. 10.2 Systems Thinking Interpretation
      3. 10.3 Summary
  13. Part IV: Yin and Yang: Integration
    1. Chapter 11. Human Roots Are Deep: Yin Meets Yang
      1. 11.1 Expectations
      2. 11.2 Self-Interest and Social Interest
      3. 11.3 Material Desires
      4. 11.4 Greed
      5. 11.5 Economic Environment
      6. 11.6 Search for Meaning
      7. 11.7 Systems Thinking Interpretation
      8. 11.8 Summary
    2. Chapter 12. It’s a Small World After All: Global Implications and the Road Ahead
      1. 12.1 Economic Truths about the Crisis
      2. 12.2 Summary of Crisis Dynamics
      3. 12.3 An Expanded Systems Perspective
      4. 12.4 Conclusions from the Expanded Systems View
      5. 12.5 Systems Thinking as a Tool
      6. 12.6 Effectiveness of Current Economic Policies
      7. 12.7 Yin and Yang Reprise
      8. 12.8 Implications for the Future
      9. 12.9 Concluding Remarks
  14. Appendix
    1. A.1 Relationship between Supply and Demand
    2. A.2 Systems Thinking Interpretation
    3. A.3 Summary
  15. References
  16. Glossary
  17. Index