Our World Is Interconnected. It’s Time Our Leaders Adapt.

A failure to learn from 2008’s global, human-made crisis is haunting 2020’s struggle with a nature-created, human-enabled one.

In our righteous anger about the 2008 financial crisis, we focused on the heinous actions of greedy executives, corrupt politicians, and ineffective regulators. Many of our public and business leaders, however, failed to learn the digital age’s first great lesson: Turning a blind eye to risk and forging ahead simply doesn’t work in a turbulent, interconnected world.

Greed and corruption didn’t suddenly arise in the early 21st century, of course. Between 1984 and 1995, Wall Streeters like Ivan Boesky and Michael Milken violated insider trading laws with impunity, receiving mere slaps on their wrists despite bankrupting a major investment bank. A nationwide real-estate bubble emerged and exploded after two major laws deregulated “savings and loans” banks. The FDIC came to the brink of collapse while trying to protect customers when one of the country’s largest banks had to be liquidated, costing taxpayers at least $2.3 billion. The list goes on. Even so, America emerged largely unscathed from this extended ordeal, and the global economy wasn’t destroyed.

So what made the 2008 crisis so different? By then, powerful computers connected global financial organizations. Computer scientists and operations researchers have shown that this network of interconnections enabled the financial contagion to spread rapidly and magnified the Great Recession’s devastations. When computerized trading hammered insurance giant AIG’s share price, for example, it had to make huge payouts even though many of the assets it had insured hadn’t defaulted. That burden bankrupted AIG and damaged all of its clients. Three major Icelandic banks — badly run, but without direct exposure to U.S. debt — collapsed because Lehman Brothers’ bankruptcy sharply raised the price of insurance for loans. Indeed, the only major economies that escaped were the ones that had resisted connecting deeply to the global financial network.