A Map of the Information Network that Failed

A Map of the Information Network that Failed

October 7, 2008 0 Comments

Earlier this week I wrote a piece describing the current capital market collapse as a cascading network failure of the information network that we call the capital market. The piece was based upon work in Chapter 7 of my new book, Lessons from a Road Warrior. I have received lots of comments and emails about the idea from readers.

Today there is a graphic in the New York Times Deal Book that describes what they refer to as The Rescue Squad. It traces all of the connections between the major players involved in the series of rescue efforts since the markets began to unravel a year ago. You can click here to see and download the graphic in all its glory.

In my article, and in Chapter 7 of the book, and in a recent TechNewsWorld article Network Theory Can Explain US Credit Crunch by Sonia Arrison, I described the Achilles heel of modern financial networks that undermines their robustness to failures. Capital market networks are dominated by a few, highly connected supernodes. When they fail, the network goes down.

As the Deal Book article states:

Among these rescuers are some of the biggest names in finance, including chief executives like James Dimon of JPMorgan Chase. But overshadowing them all is the increasingly powerful trio of Henry M. Paulson Jr., the Treasury secretary; Ben S. Bernanke, the Federal Reserve chairman; and Timothy F. Geithner, the president of the Federal Reserve Bank of New York.

I would have added a few more supernodes–Fannie Mae, Freddie Mac, and the members of Congress (Barney Frank, Chuck Schumer, …) who pushed them over the cliff into making subprime loans. If you want to identify the supernodes that failed, causing the current capital market crisis, look no further.

JR

John Rutledge

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