Let small fires burn

The remarkable stability of the past two decades sowed the seeds of the current crisis. In future, monetary authorities will have to be more aggressive about removing the punch bowl when the party gets interesting, argues David Rowe

In a generic sense, financial markets are one example of a dynamic adaptive system. As pointed out in my September column (Risk September 2009, page 110), considerable discussion surrounds what we can learn from other such systems to improve financial supervision and risk management. I believe one important lesson comes from the area of forest fire prevention and control.

For many years, the US Forest Service followed a policy of quenching every small fire as quickly as possible. Exceptions to