Clearinghouse mutualization makes a single member’s failure a system-wide contagion risk.

Evidence

But most of all, what we couldn’t see coming was something that the instruction sheet said was irrelevant, a form of risk that wasn’t reducible to the sum of individual risks: systemic risk. Systemic risk is ever present as a residual: it’s the risk you cannot diversify away. But it is also emergent from within and amplified by the interlinking of individual agents’ decisions in a way that is not predictable from knowledge of those individual decisions. Systemic risk, the risk that cannot be foreseen, the bullet in the chamber of the gun, is what the different elements discussed here combined to produce. Systemic risk blew the efficient market down. — Mark Blyth, Austerity, 134 (#corroborates, via linked claim)

Categorization

• XREF: connects to: A system of interdependent networks is significantly more vulnerable to shocks and damages, leading to cascading failures across networks. — Cascading Failures in Interdependent Economic Networks; Clearinghouse settlement failure alone could have triggered a cascade of 1987 bankruptcies; Systemic risk is emergent and irreducible to the sum of individual risks — Mark Blyth, Austerity: The History of a Dangerous…, 134 (+4 more)

Related

• Clearinghouse interdependence made a single default able to collapse the whole exchange (similarity 0.89)
• A system of interdependent networks is significantly more vulnerable to shocks and damages, leading to cascading failures across networks. (similarity 0.79)
• Systemic risk is emergent and irreducible to the sum of individual risks (similarity 0.79)
• Clearinghouse settlement failure threatened to close the Merc and cascade into widespread bankruptcy. (similarity 0.79)
• Clearinghouse settlement failure alone could have triggered a cascade of 1987 bankruptcies (similarity 0.79)

Broader Connections

• Clearinghouse settlement failure alone could have triggered a cascade of 1987 bankruptcies #corroborates (0.95)
• Systemic risk is emergent and irreducible to the sum of individual risks #corroborates (0.90) — Mark Blyth, Austerity, 134
• Institutions exist to block the destructive tail risks of interacting with the untrustworthy #responds-to (0.78) — Russell Hardin, Trust and Trustworthiness, 511
• Disembedding mechanisms remove control from individuals and create collective risk #complicates (0.75) — Anthony Giddens, The Consequences of Modernity, 310