Nature – The financial system is in a credit-confidence trap. Like a badly balanced ship trying not to capsize during a storm, banks and financiers are unwilling to make loans or accept collateral in exchange for securing debts — they fear being overwhelmed by the next wave of crisis. Even though the first sovereign default, in Greece, has passed, there is no obvious port in this storm.
How did the system get so far out of balance? And how can scientists — accustomed to modelling complex events to explain and make predictions — help to create a financial system that is more self-stabilizing? Existing financial models failed to predict the crisis of 2008 and the follow-on crisis of 2011–12. They missed the huge system-wide risks that developed as banks promoted an undisciplined supply of mortgages and created an increasingly complex web of relationships through legal contracts that transferred risk throughout the financial markets.