Judge Posner on the Systems Theory of the Financial Crisis

Yet even if all firms that create systemic risk decided to shrink, or to reduce their interactions with other financial firms, systemic risk would not be eliminated. For such risk is a property of the financial system rather than of individual firms. That is, systemic risk is correlated risk. If the entire banking industry were heavily invested in home mortgages, and a housing bubble caused a drastic fall in the value of those mortgages, it wouldn't matter if the industry consisted of 10,000 banks of equal (and therefore equally small) size that had no dealings with other financial firms. The whole industry would be brought down.

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