Emergent Behavior in an Unregulated FinancialSystem of Systems: Economic Meltdown

摘要

The need to consider the human dimension to systems engineering is no more evidentrnthan in the current global economy. The current global financial crisis can be interpreted byrnapplying a system of systems analysis methodology that elucidates the behavior that has emergedrnfrom the unregulated US market in collateralized debt obligations (CDOs). The market for USrnfinancial obligations of collateralized debt obligation market is modeled dynamically as a systemrnof systems covering the time period from 2000 to 2008. Behavior of home mortgage borrowers,rnlenders, CDO buyers and sellers, as well as specific market inputs and outputs are included in thernmodel. Results show that an increasing rate of home loan defaults and loss of financial marketrnliquidity is a predictable and natural consequence of the market conditions. Of particular interestrnare the leading indicators that result in financial instabilities.