The U.S. financial markets are undergoing “seizures” whose origins are similar to those in epilepsy, say Tel Aviv University researchers.
Since 2008, the U.S. economy has been “seizing” uncontrollably, and the researchers suggest that the epilepsy symptom – of one sector of the brain taking over and tampering with the normal activity of other brain sectors – is what has happened to markets.
Prof. Eshel Ben-Jacob of Tel Aviv University’s School of Physics and Astronomy, doctoral student Dror Y. Kenett and economist Dr. Gitit Gur-Gershgorn examined the dynamics of the Standard & Poor 500 stock market average over the last decade, employing methods originally developed by Prof. Ben-Jacob to analyze the brain activity of epilepsy patients.
They discovered that a dramatic transition in the financial markets in 2001 would have been an accurate predictor of the meltdown that occurred in 2008 and which could have been prevented if diagnosed correctly.
Comparing brain dysfunctions with those in the markets, Prof. Ben-Jacob says that the market's epileptic-like behaviour resulted in the excessive dominance of the financial services sector. This in turn distorted healthy activity in other sectors of the economic marketplace, such as real estate investment and the activities of banks, governments and investment companies.
This dominance led to “market stiffness,” which proved to have fatal implications during the financial crisis that swept the world nearly three years ago.
“In epilepsy, the over dominance of the epileptic focus on the functioning of all other regions of the brain can result from excess activity of the neurons because the links between them are too strong, or from insufficient inhibition,” Prof. Ben-Jacob says. He suggests that “surgical intervention” in the financial markets could sever some excess links between different sectors of the financial marketplace, along with a stronger inhibition of its excess activity – by increasing interest rates, for example.
He warns that the United States may be trying to “avoid the major and painful surgery needed to cure the market.”
The professor also maintains that the dangerous dominance of the financial sector might have been a direct consequence of hasty and dramatic U.S. interest rate cuts and other remedies used in 2001 to overcome the fallout from the “dot com” bubble collapse.