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Financial Whirlpools - 1st Edition - ISBN: 9780124059054, 9780124059214

Financial Whirlpools

1st Edition

A Systems Story of the Great Global Recession

Author: Karen Higgins
Paperback ISBN: 9780124059054
eBook ISBN: 9780124059214
Imprint: Academic Press
Published Date: 26th March 2013
Page Count: 400
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How do economists reconcile their expertise with their failures to predict and manage the 2008 financial crisis? This book goes a long way toward an answer by using systems theory to reveal the complex interdependence of factors and forces behind the crisis. In her fully integrated view of the economy, how it works, and how the economic crisis burst, Karen Higgins combines human psychology, cultural values, and belief formation with descriptions of the ways banks and markets succeed and fail. In each chapter she introduces themes from financial crisis literature and brings a systems-theory treatment of them. Her methodology and visual presentations both develop the tools of systems theory and apply these tools to the financial crisis. Not just another volume about the crisis, this book challenges the status quo through its unique multidisciplinary approach.

Key Features

  • Presents a broad global view of international economic health and international corporate health
  • Describes how policies, regulations, and trends dating to the 1950s influenced the crisis
  • Assumes readers possess a general familiarity of economics and finance


Primary: upper-division undergraduates and graduate students worldwide studying the 2008 financial crisis and financial crises in general.

Secondary: people interested in financial risk management and operational research.

Table of Contents


List of Figures and Tables





Introduction: Systems Thinking and the Great Global Recession

Part I: Foundations

Chapter 1. Lines or Circles: The Basics of Systems Thinking

1.1 A Brief History of Systems Thinking

1.2 Application and Relevance of Systems Thinking

1.3 Linear Thinking and Systems Thinking

1.4 Complexity Economics and Systems Thinking

1.5 Systems Thinking Concepts

1.6 Loops

1.7 Lags: Time Delays

1.8 Limits to Growth

1.9 Levers: Points of Power

1.10 Visualization Tools

1.11 System Boundaries

1.12 Systems Thinking Philosophy

1.13 Summary

Chapter 2. As the Gears Turn: Policies, Practices, Markets, and Risk

2.1 Timeline

2.2 Federal Economic Policies

2.3 Home Mortgage Lending Practices

2.4 Markets and Human Behavior

2.5 Housing Market

2.6 Financial Market

2.7 Risk

2.8 Systems Interpretation

2.9 Summary

Part II: The Yin: Human Behaviors

Chapter 3. Where Can I Buy One? Humans and the Economy

3.1 History of Human Psychology in Economic Theory

3.2 The Role of Values and Beliefs in Economics

3.3 The Role of Expectations in Economics

3.4 The Role of Human Nature in Economics

3.5 Summary

Chapter 4. Who Are You Anyway? Values, Beliefs, Norms, and Behaviors

4.1 American Culture

4.2 Corporate Cultures

4.3 Systems Thinking Interpretation

4.4 Summary

Chapter 5. Visions of Grandeur: Expectations and Behaviors

5.1 Expectations and the Economic Environment

5.2 Systems Thinking Interpretation

5.3 Summary

Chapter 6. A Crisis of Human Proportions: Ethics and Behaviors

6.1 Mortgage Fraud

6.2 Disreputable Lending

6.3 Shady Corporate Strategy

6.4 Deceitful Dealings

6.5 Systems Thinking Interpretation

6.6 Summary

Chapter 7. Self Speaks Loudly and Carries a Big Stick: Sources of Unethical Behavior

7.1 Ethics and its Purpose

7.2 Ethical Issue: Self-Interest Versus Social Interest

7.3 Human Nature Traits of Self-Interest

7.4 Societal Needs

7.5 Economic Environment

7.6 Repositories of Moral Grounding

7.7 Concern about Consequences

7.8 Greed and Hubris

7.9 Short-Term Narrow-Focused Rewards

7.10 Historic Precedence

7.11 Systems Thinking Interpretation

7.12 Summary

Part III: The Yang: Economic Mechanisms

Chapter 8. What Goes Up Must Come Down: The Housing Bubble

8.1 Bubble History

8.2 The Rise and Fall of the Housing Bubble

8.3 Affordability and the Housing Bubble

8.4 Supply, Demand, and the Housing Bubble

8.5 Reasons for Supply and Demand Shifts

8.6 Supply and Demand Shift Synopsis

8.7 Systems Thinking Interpretation

8.8 Summary

Chapter 9. On Top of Debt Mountain: High-Risk Loans and Credit

9.1 Journey Segment One: Easy Availability of Credit

9.2 Journey Segment Two: High-Risk Loans

9.3 Journey Segment Three: Accumulation of Debt

9.4 Journey Segment Four: Defaults, Bankruptcies, and Foreclosures

9.5 Systems Thinking Interpretation

9.6 Summary

Chapter 10. The Risk Tiger Pounces: Financial Market, Risk, and Securitization

10.1 Securitization, Structuring, and Derivatives in the Financial Market

10.2 Systems Thinking Interpretation

10.3 Summary

Part IV: Yin and Yang: Integration

Chapter 11. Human Roots Are Deep: Yin Meets Yang

11.1 Expectations

11.2 Self-Interest and Social Interest

11.3 Material Desires

11.4 Greed

11.5 Economic Environment

11.6 Search for Meaning

11.7 Systems Thinking Interpretation

11.8 Summary

Chapter 12. It’s a Small World After All: Global Implications and the Road Ahead

12.1 Economic Truths about the Crisis

12.2 Summary of Crisis Dynamics

12.3 An Expanded Systems Perspective

12.4 Conclusions from the Expanded Systems View

12.5 Systems Thinking as a Tool

12.6 Effectiveness of Current Economic Policies

12.7 Yin and Yang Reprise

12.8 Implications for the Future

12.9 Concluding Remarks


A.1 Relationship between Supply and Demand

A.2 Systems Thinking Interpretation

A.3 Summary





No. of pages:
© Academic Press 2013
26th March 2013
Academic Press
Paperback ISBN:
eBook ISBN:

About the Author

Karen Higgins

Karen Higgins

Dr. Karen Higgins has a B.S. in Mathematics, M.S. in Electrical Engineering, and an MBA and PhD in Executive Management. She has extensive experience in executive leadership and in leading research and engineering teams. Throughout her 32-year career with the Naval Air Warfare Center, Weapons Division at China Lake and Pt. Mugu, California she held technical, functional, project and executive management positions for efforts that integrate state-of-the-art and commonly-used weapons systems onto some of the newest jet fighter aircraft. As a member of the Senior Executive Service, she was one of the most senior civilians within the U.S. Department of Defense. In her Executive Director and Director for Research and Engineering roles, she had responsibility for a $1B budget and over 5,000 employees. She has received the highest civilian awards for her services to the Navy and the Department of Defense.

As President of ÉLAN Leadership Concepts, Dr. Higgins serves as a leadership consultant for government and industry. She is an adjunct professor at Claremont Graduate University, where she teaches Project Management, Systems Thinking, and Morality & Leadership. She enjoys her grandchildren, practices yoga, does research, and writes. Her recent book, Financial Whirlpools (2013), analyzes the financial crisis of 2008-2009 using a systems perspective. Her second book, Economic Growth and Sustainability (in print, 2014), investigates the relationship among Economy, Environment and Society also using a systems perspective.

On a personal note, she enjoys ballroom dancing and "loves, loves, loves" the LA Clippers!

Affiliations: Claremont Graduate University, Claremont, CA, USA (Adjunct Professor) ÉLAN Leadership Concepts, Ridgecrest, CA, USA (President) Effective Edge, Austin TX, USA (Performance Catalyst)

Personal website:

Expertise Executive leadership, project management, systems thinking, sustainability, ethics, interpersonal communication, culture shaping

Affiliations and Expertise

Claremont Graduate University, Claremont, CA, USA


"This work applies ‘systems thinking’ (drawing on insights from economics, psychology, philosophy, ethics, and management) in order to analyze the dynamics of the global economic crisis that began in 2008. Unlike linear thinking, the systems framework takes into account such dynamics as feedback Loops, Lags between decisions and actions, Limits to systems such as the economy, and Levers for applying change in the most effective manner."--Reference & Research Book News, December 2013
"This book delivers revealing insights about how systems theory can inform the way we think about financial systems. It has the power to change the way we think about economic crises." --Luke Houghton, Griffith University, Australia
"Financial Whirlpools insists that the economy must be studied as a complex whole that is capable of producing unexpected results and brings these insights to bear on the financial sector. The book is a welcome departure from the individualistic and mechanistic thinking that blinded a profession to the possibility of the recent financial crisis." --Mark Setterfield, Trinity College, US 

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