Credits and the Instability of the Financial System: A Physicist's Point of View
Prof. Dr. Thomas Guhr (Fakultät für Physik, Universität Duisburg-Essen)

In the last fifteen to twenty years, a growing number of physicists became interested in the economy, particularly in the financial system. "Econophysics" emerged as a new field of esearch. I discuss this development in general and then turn to an issue which continues to hit the news: credit contracts, their risk, and the obvious severe instabilites caused for the world economy as a whole.

It is often claimed, particularly by financial institutions, that the risk involved with credits can be substantially lowered by diversification, i.e. by distributing it. I use a "microscopic" model to show that this very concept is deeply flawed. The study is carried out with numerical simulations, but also semi-analytically by employing random matrices which are a powerful tool in the theory of complex and chaotic systems.

I start from scratch! - Background in economics is not needed!