Geoscience Reference
In-Depth Information
endemic in early American history. If too many people lose confi dence
in a bank, they rush to the bank and attempt to withdraw their funds.
Because banks typically have only a small fraction of their deposits on
hand as cash (or gold and silver in the days of a metallic standard), they
could not satisfy all their depositors. Once people think that there is
likely to be a bank run, it becomes a self-fulfi lling expectation. They
run to the bank to get their funds before other people, who in turn are
trying to get there before they do, and the bank quickly runs out of
cash. If you watch the 1946 fi lm
It's a Wonderful Life
, not only will you
be entertained, you will also see a bank run on the silver screen.
For many years, bank runs existed only in courses in economic his-
tory. But they returned in the fi nancial crises of 2007-2008 at the
speed of electronic transfers. When lenders smelled trouble with invest-
ment banks Bear Stearns in March 2008 or Lehman Brothers in Sep-
tember 2008, they withdrew billions of dollars overnight. When distrust
crossed a critical threshold, these fi rms were run out of business in a
week, and the ensuing panic in fi nancial markets contributed to the
deep economic downturn that has haunted the United States since 2008.
A similar phenomenon occurred in Greece in 2012 and in Cyprus in
2013. When people worried that their euros deposited in Greek or Cypriot
banks might lose their value, they withdrew their euros and put them
in a safe place.
One of the most important lessons from the recent fi nancial crises
is that no one understood how fragile the system was. No one anticipated
how profound the economic costs of the fi nancial panics would be. We
should heed this lesson as we think about the tipping points that might
be crossed as we alter the climate.
A STRANGE BOWL TO ILLUSTRATE TIPPY SYSTEMS
Figure 11 illustrates tipping points using a ball in a strange double-
bottomed bowl. The vertical height of the bowl represents the health of
the system. It might be a bank, an ecosystem, or the height of an ice
sheet. In panel (a), the ball starts out in a good or desirable equilibrium.
Then some kind of stress (warming in the climate system or fear in a
