In the summer of 1982, large American banks lost close to all their past earnings (cumulatively), about everything they ever made in the history of American banking - everything. They had been lending to South and Central American countries that all defaulted at the same time - 'an event of an exceptional nature.' So it took just one summer to figure out that this was a sucker's business and that all their earnings came from a very risky game. All that while the bankers led everyone, especially themselves, into believing that they were 'conservative.' They are not conservative; just phenomenally skilled at self-deception by burying the possibility of a large, devastating loss under the rug. In fact, the travesty repeated itself a decade later, with the 'risk-conscious' large banks once again under financial strain, many of them near-bankrupt, after the real-estate collapse of the early 1990s in which the now defunct savings and loan industry required a taxpayer-funded bailout of more than half a trillion dollars. The Federal Reserve bank protected them at our expense: when 'conservative' bankers make profits, they get the benefits; when they are hurt, we pay the costs.

- Nassim Nicholas Taleb, in The Black Swan, April 2007

Since the days when Adam Smith and William Godwin debated how to best pursue desirable moral and social agendas, society (and it's change agents, politicians) have been in constant tension, on two sides of a fence, on how to best achieve such ends. Those with one vision of this future perceive it as orderly and perfectable, and thus malable to the passions and fervor of the young and ambitious. Those with a second vision instead sees this future as imperfect, bounded in terms of possibilities, and evolutionary in nature, and thus in need of tradeoffs and careful tuning by those with experience, rather than through revolutionary (and potentially misguided) changes. Those with the first vision often believe the answer lies in writing ever-more-complex regulations (their bumper stickers read 'trust government'); those with the second vision instead believe in promoting a carefully balanced system of risks and rewards, and thus favor approaches which incentivize desirable behaviors performed by independently operating agents (their bumper stickers read 'trust the people'). Sometime, events occur in which neither of these visions makes sense. When this occurs, futures can become truly unpredictable.

Of course, all similarly complex systems, whether social or mechanical, can quickly become increasingly difficult to understand, predict, or influence, as they evolve with time. This is particularly evident in our economic system. Consider this analysis of the 1929 stock market crash:

Smith's hidden hand became a part of the lore of the business world, and to many it was a force that society hindered at its peril. Here is Ralph Waldo Emerson in 1860: "Wealth brings with it its own checks and balances. The basis of political economy is non-interference. The only safe rule is found in the self-adjusting meter of demand and supply. Do not legislate. Meddle, and you snap the sinews with your sumptuary laws... The laws of nature play through trade, as a toy battery exhibits the effects of electricity. The level of the sea is not more surely kept, than is the equilibrium of value in society by the demand and supply; and artifice or legislation punishes itself, by reactions, gluts, and bankruptcies. The sublime laws play indifferently through atoms and galaxies."

The problem is, even now, no one has discovered what these laws are. In spiteof the elegance of Emerson's words, considerations of supply and demand evidently do not suffice to explain the sometimes wild behavior of the market. John Kay of the London Business School says, "Economic forecasters... all say more or less the same thing at the same time; the degree of agreement is astounding. [But] what they say is almost always wrong."

And so it was ever thus. One week before the Great Crash of October 1929 - the largest in history - Irving Fisher of Yale University, perhaps the most distinguished US Economist of his time, claimed that the American economy had attained a "Permanently high plateau". Three years later the national income had fallen by more than 50 percent. No one, not a single economist, had seen it coming."

- Phillip Ball, in Critical Mass: How One Thing Leads to Another

Analyzing a crisis in which competing interests are at play, and developing a fair and rational strategy that balances those interests in a compressed timeframe, is one of the most difficult challenges that can be envisioned. One would hope that:

• decision-making criteria are well designed and communicated in advance
• decision-makers operate transparently and are committed to maximize progress towards their collective desired outcomes
• well-defined scenarios (including potential failure paths) are analyzed, explored, and rehearsed, before any such risks actually occur, and risks identified from such analyses are captured, communicated, and mitigated in accordance with the exposure which they represent

Let's evaluate the current financial crisis in this context, by considering the following questions: