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Overconnected: The Promise and Threat of the Internet by William H. Davidow

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TEN

How the Internet Supercharged the Subprime Crisis

To see the recent subprime crisis coming should not have taken a genius. Ignoring its prospect was like looking at a forest blanketed with dead underbrush and dying trees—in drought season—and not being concerned about a forest fire. Of course, no one can predict when such a fire will occur. But the chances that one will happen are extremely high.

The underbrush prior to the subprime crisis was the large number of important positive feedback loops—tens, probably hundreds of them—driving the financial system to extremes and creating thought contagions that inspired greed. They were making the system more volatile and less predictable and creating an accident-prone environment as vulnerable ...

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