Major Breakdowns and the Alignment of Errors

Who is responsible for the housing crisis? Some candidates are borrowers, lenders, rating agencies, and securities investors.  However, attempts to blame one party or another fail, because the crisis is the result of a combination of errors by different parties which all aligned. Think of a wedge of Swiss cheese; to see through it, all the holes must line up. This approach is explained in James Reason’s Human Error, and illustrated in a diagram from that book:

In the housing crisis, here are some errors which had to align to get to where we are today:

1) Borrowers took out loans they couldn’t afford

2) Lenders made loans to borrowers which the borrowers couldn’t afford

3) Ratings agencies rated securities comprised of these loans as safe

4) Security purchasers relied on the erroneous ratings and bought the securities

Any of these parties could have averted the crisis had they avoided their respective error.

In any complex system, it’s often more likely that a major breakdown is the result of an alignment of errors, rather than the failure of a single component.