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November 05, 2007

Black Swans, Banks and Bird Flu in the U.S.

In nature, swans are white, but black swans are a low probability event that is observed with regularity. In other contexts, a black swan is a low probability event with serious, even catastrophic consequences. Terrorism is a prime example of a black swan event, and I earlier blogged about the simulation of a 10 megaton nuclear weapon in a shipping container being sent to the port of Los Angeles. Now, we have another simulation of a black swan event - an examination to see how the U.S. financial system would hold up to a bird flu pandemic that could happen if the virus mutated so it could be spread human to human. 

The simulation imagines human to human transmission that starts in Asia but quickly spreads because of airline passengers.

One of the biggest challenges financial institutions will face is how to cope with absenteeism. In week one, the Treasury exercise directs the financial organizations to assume that 25 percent of their work force is not coming to work, either because of illness or because of fear of being infected or because they are staying home to take care of children who can't go to school because the schools have closed.

To decide who is absent, the Treasury directs the institutions to assume that everyone whose last name begins with certain letters, which could cover the bank president down to the local teller, cannot come to work. The 25 percent absentee rate will jump to 49 percent in week two.


Absent employees won't be the only troubles facing the financial institutions. Under Treasury's scenario, they also will have to cope with shrinking Internet bandwidths as more and more people try to work from home. Cash withdrawals from ATM machines are expected to rise sharply and getting the machines refilled will present problems because of rising absentee rates at the armored car companies and the difficulty of getting fuel for the armored trucks as gasoline refineries curtail their production.

The simulation finished last month, although it will be a while before all the results are analyzed a report comes out. In the meantime, TheStreet.com recommends you prepare for the bird flu also. I'm not so sure, but I would look over the recommendations and see which ones reinforce other disaster preparedness ideas you might already be considering. If you take this seriously, then check out PlanForPandemic.com and PandemicFlu.gov.  

Many people like the idea of putting away gold or silver in case of an emergency, especially "junk silver" coins. [Before 1964 U.S. coins were made with silver, giving them a value because of the precious metal and would be easy to trade because it is a known amount of silver in smaller coins instead of a gold bar.] But note that the U.S. Treasury claims the power to seize not just precious metal but all other financial assets if necessary.  You can rub your eyes and blink again, but the sentence will read the same. And it is based on a letter from the Trasury, not the rantings of a paranoid here-comes-the-black-helecopters type.

Now, back to your regularly scheduled reality...


Listening to

annie lennox, songs of mass destruction 

Annie Lennox

Songs of Mass Destruction

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