I wanted to add to the Capitalism fails when the Banks become too big to save. by LaFeminista by offering a computer analogy which I think tries to explain what is going on in the financial sector. I've always liked using analogies to explain things. Analogies can simplify extremely complicated concepts. I apologize to the computer geeks amongst us if I oversimplify some concepts but, here goes.
An operating system is the traffic cop of the computer. It allows multiple programs to "simultaneously" execute while preventing programs from interfering with each other. A good operating system never allows a poorly written program ( application) to compromise the integrity of another program . The operating system is the boss. It sets the rules under which all applications can execute. If an application doesn't follow the rules, it is terminated by the operating system and all the resources (ie. memory and CPU time) being used by the offending program are returned to the system for use by other programs. Well written operating systems "regulate" the system. They prevent "rogue" applications from putting the rest of the system in a compromising state. It will terminate "bad" applications in order to keep the system up and running. To simplify this analogy, I include the people who help run the system, system administrators and computer operators, as part of the operating system. Operating systems have become extremely reliable and have contributed to the stability of all computers including the Internet. Without stable operating systems the Internet would not be accessible 27/7/365. A "system" like the Internet is what all systems should be modeled after.
The infamous "Blue Screen of Death" is most often caused by an application being "allowed" to take over the system eventually crashing the system. In actuality, it's not allowed on purpose, the application just takes over because of the poorly written operating system. When poorly written applications take over a unregulated system, the system eventually crashes. In the case of the Blue Screen of Death, the operating system fails to do it's job. Instead of the program being terminated, the whole system collapses, bringing down all the other programs with it. Sound familiar? Sound like the financial crisis?
How does this relate to the financial system? The financial system has applications too. The applications of the financial world are highly complex. Combined, they make up the system called "world finance" but the operating system in charge of regulating/policeing these applications have refused to bring these financial applications down when they have jeopardized the rest of the financial system. In 2008, the financial system "froze" and was on the verge of crashing. In the computer world, a system will freeze or slow down dramatically when it's running low on memory. If you pretend the money and debt of the financial system is analogous to the memory in a computer system you see a scary correlation. In the computer world, an operating system should not let one application take down the entire system . In the finance world, when an application tries to take down the entire system we just keep adding more debt/money . We don't terminate the application. The "world finance" system justs adds more debt and prints more money to keep it's system up and running. IOW, we're adding memory to the computer without bringing the application down hoping that eventually the application fixes itself or stops asking for more memory! As us computer people know, you can't just keep adding memory. Eventually you will run out of address space because a machine can only address a finite amount of memory. The amount of memory isn't infinite just like our capacity for more debt isn't infinite. Either you fix the program, or the system will eventually crash. IMO, the financial Blue Screen of Death is in our future. We have an unregulated financial system with applications that are allowed to take over the entire system with no consequences. We have applications running out of control. These applications were never terminated so they could be analyzed and fixed.. The system was kept up even though the application is full of bugs. It's a disaster waiting to happen.
In closing, I wish financial "geniuses" had some understanding of what it takes to create a system which has the ability to run forever without crashing. They haven't got a clue , and Congress certainly is even more clueless. Even some economist I hear talking seem to be clueless too. I could go into the unstructured programming and spagetti code of what is the whole derivates market but I'll leave it here for now. It's depressing knowing that this financial problem might never be fixed until the Blue Screen of Death shows it's ugly face in the financial system. Finally, if anyone in the near future complains to you about regulating the financial industry or nationalizing the banks, ask them how enjoyable it is when their PC displays the Blue Screen of Death?