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Years ago, Catherine Mann (Brandeis, OECD, GIC board) set out an articulate thesis about interdependencies, both negative and positive. She used the metaphor of the alcoholic and the liquor store.

The alcoholic buys whiskey from the liquor store and promises to pay in the future. The liquor store books the sale and the profit and raises its accounts receivable. It pledges those receivables to a bank and borrows cash so it can buy more booze to sell to the drunk. This unsustainable arrangement may continue for years. When it stops, the cumulative force of a prolonged negative interdependency fiercely asserts itself.

Positive interdependence commences only after negative interdependence ceases. The child and the cookie jar is another metaphor. Only when a punishment is administered and the cookie jar is put out of reach does the child's behavior change. Interim warnings mean nothing.

For financial professionals the transition from negative interdependence… Read More …