The Financial Kessler Effect

Like orbiting space debris, every loan that has been collateralized by an illiquid asset is a high-speed projectile with the potential to disable any other part of the system it impacts.

Complex systems can undergo what's known as phase shifts, where the state of the system changes abruptly. The classic example of this is liquid water turning to ice. Since the mechanisms at work--temperature, saline levels, etc.--is known and measurable, then this phase transition is predictable.

Complex systems with emergent properties are unpredictable…