The Global Financial Crisis of 2008/2009 brought the world economy and financial system to its knees. Trust - the backbone of finance - evaporated almost overnight as people 'suddenly' discovered that the foundation upon which the financial system rests was made of sand.
The financial system leading up to 2008 was a tightly wound ball of overlapping contracts, ultimately tied to what everyone believed to be a fundamental truth - that housing prices never declined. When housing prices indeed started to decline around 2006, a disaster started unfolding in slow motion.
The economy gradually weakened and risk levels rose. However, despite the warning signs and worsening financial conditions, only a few publicly acknowledged what could eventually happen as the fundamental truth increasingly appeared to be a lie. They warned that the slow erosion of trust could eventually collapse into a full-blown financial panic, given the degree of leverage and complex inter-dependencies within the system.
Those who sounded the alarm in 2006 and 2007 to the public, senior executives and government officials were often figuratively and literally laughed out of the room. Despite weakening conditions, at that time, the state of the world economy was still strong, unemployment low and stocks at all-time highs. It was very difficult to convince anyone of the financial catastrophe that was just around the corner.
How bad did it get in 2008 and 2009?To put it simply, the global financial system almost collapsed. In other words, beyond the standard cost-cutting that occurs during a typical economic recession, companies almost couldn't meet payrolls, banks almost had to close their doors, people almost lost their life savings. Of course, these things didn't ultimately happen because governments and central banks around the world poured trillions of dollars into the system, bailing out companies that were deemed 'too big to fail'. While this prevented the worst from occurring, the post-crash recovery was still very slow and painful.
Today, the scenario is repeating.Today's slow motion disaster is climate change and the collapse of the ecosystem. Some see it happening. The warning signs are clear. Yet, the world remains slow to react, just as it did in the years leading up to the Global Financial Crisis.
People are taking their time because the state of the world is still livable and change appears to be happening at a slow and manageable pace. However, like a highly interconnected and leveraged financial system built on an eroding foundation, the ecosystem can unravel much faster than most foresee.
Like the financial crash of 2008/2009, the meaningful work to fix the environmental system won't begin until real pain is felt. Unfortunately, unlike the financial system, money can't simply be printed to rescue runaway temperature rises, crop failures and water shortages. Humans can't eat money.
Is there hope for humanity?One can hope that humanity is smart enough to mitigate an existential crisis. However, 30 years of complacency proves otherwise. Throughout human history, we've proven repeatedly to ignore any trends that stray from a linear path. We simply aren't wired to recognize and mitigate long-term system-wide risks that compound over time. As a species, if we're comfortable today and believe we'll be comfortable next month, we're pretty much satisfied.
The blunt truth is that humanity is about four missed meals away from anarchy. We're only one major crop failure away from a complete collapse of civilization.
The world has been warned with ample time to react. Unfortunately, science has been laughed out of the room one too many times.