For those interested, I manage the Black Swan group on Linkedin. You can join here.
The general discussion is in regards to systemic risk and how to think about extreme events. My own biases are for the implementation of Lo-Fi finance (low fidelity), the idea being a loosely coupled financial system is safer by design than any focus on strengthening individual components via micro-management.
Lo-fi works on 2 levels, one is that it is the opposite of high fidelity a highly engineered system and it is based on individual units not trusting each other too much so they are more cautions. Counter intuitively ratings agencies made things riskier. After all nobody got fired early on for buying a AAA rated CDO tranche.
Lower trust would have meant more independent thought. Lo-Fi is safety at the expense of efficiency and innovation. The slow movement in finance if you will.
Instead of focusing on weak links in the chain such as specific instruments, participants or markets, I argue we should focus putting more space between the links via regulation.
If you want safer roads, don't put ever more airbags in the cars, make sure there is enough space between the cars, (more roads, fewer cars, slower speeds that sort of thing). Yes this goes against most cultural values that push for ever greater speed and the role of the individual as independent unbounded actor.
Glass-Steagall was an example of lo-fi finance, sub-optimal in terms of efficiency of scale but safer and thus more stable in the long run. Lo fi would lead to more work on the analysis side of the business in smaller institutions and regulated boundaries to growth defined by either product or market niche.