Tuesday, June 21, 2011

What does the financial crisis have to do with Three Mile Island?

A lot, if one believes the Financial Times columnist and book author Tim Harford. For his book Adapt, he researched the parallels between security in engineering and security in financial markets. Harford singles out three main issues which put the stability of the financial markets in danger: complex structures of financial institutions, interconnectedness of financial institutions and a lack of control through regulators.

he more complex a financial institution, the more likely it is that risks will not be recognized until it is to late. Harford compares the meltdown of Lehman Brothers with the failing reactor at Three Mile Island in the United States. The reactor, he says, started overheating at 4 a.m. when knowledgeable personnel was absent, the control room was difficult to understand due to its impractical design and security systems reinforced the catastrophe rather than attenuating it.

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