For me, there was something deeply intriguing, and deeply beautiful, about this self-organized emergence of order from disorder, of complexity from simplicity.
--Mitchell Resnick,
Turtles, Termites, and Traffic Jams

In December 1994 a small bar band with the unusual name of Hootie & the Blowfish blipped onto the radar screen of popular culture. Around the country a few college stations had begun to play their first single, a catchy song entitled "Hold My Hand," which soon caught on with alternative stations. Before long, it began to generate significant radio play on top-forty stations as well.

And then, seemingly out of nowhere, the band exploded into the mainstream. Their debut album, Cracked Rear View, soared to the top of the Billboard charts. MTV's sister station, VH1, put their video into heavy rotation. The band went from an opening act for the hip group Toad the Wet Sprocket to a headliner in concert halls reserved for top bands like Smashing Pumpkins or Pearl Jam. They appeared on the cover of Rolling Stone and, on one of their three appearances on the David Letterman show, received the cranky host's enthusiastic endorsement. They were not merely successful; they were suddenly stars. After one year on the charts, their debut album had sold more than thirteen million copies, making them one of the fastest-selling bands of all time.

In 1990, the state of Rhode Island's solid stretch of prosperity finally started to slow. Real estate values had risen dramatically over the past decade--a developer's dream. The expanding availability of credit for speculative real estate transactions had helped drive up land values, and the rise in land values had enabled developers to borrow more against their real estate portfolios. Among the most aggressive lenders in this market were some of the state's largest credit unions. Although they were not traditional commercial real estate lenders, they found the prospective profit margins on the speculative real estate transactions simply too attractive to pass up; so attractive, in fact, that even as the market slowed they continued to book loans and expand their deposits aggressively.

But as 1990 came to a close, hints of trouble appeared. Following the publication of a news article about the criminal activities of an official of a bank insured by the Rhode Island Share and Deposit Indemnity Corporation (RISDIC), depositors began quietly removing their deposits from other RISDIC-insured institutions. Most of the credit unions and several banks were insured by RISDIC. Deposits in these institutions had no federal guarantee, and RISDIC had only $25 million to backstop their $1.5 billion in deposits. At one of the most aggressive of the lenders, the approximately $300-million Rhode Island Central Credit Union, withdrawals were particularly large. Several newspaper reporters picked up on this and reported the nervous behavior. At first, the daily total was less than $1 million; but as the story grew and more and more people became aware of the withdrawals and followed suit, that number grew. By December 31, 1990, withdrawals at Rhode Island Central reached $7 million. The next day, the new governor was forced to declare a banking emergency and proceeded to close the forty-five credit unions and banks that had been insured by RISDIC.

Of the forty-five closed institutions, thirty-two were soon able to reopen with federal insurance, merge, or otherwise pay off their depositors. The remaining thirteen institutions, with approximately $1.2 billion in deposits, remained closed, preventing an estimated one third of Rhode Islanders from access to their money. It was the worst financial crisis in the state's history.

Fast-forward to the current long distance wars. AT&T, which once held a market share of 100 percent, has, since its breakup, seen its share in its core residential market erode to less than 70 percent. Over the past fifteen years, competitors have not merely stolen Ma Bell's market share but fundamentally changed the rules of the game. What was once a premium branded service has become a commodity. And what was once a guaranteed customer base is now a cutthroat competition complicated by competitive rates, incentive promotions, and celebrity spokespeople.

One may not be able to think of a more chaotic business than recorded music, a messy world of wild, creative artists and constantly changing tastes. As Chris Rock says about its pace of change: here today, gone today. We expect people to buy music with their gut; what we don't anticipate is predictability. Veterans of the industry may have acquired an intuitive feel for the market, but no one expects that they can manufacture blockbusters on demand. Hits in this world appear to come out of the blue.

In Rhode Island, likewise, no one could have foretold that the system was preparing to shift. Nor could one know whether the shift itself would be slow and gradual or fast and precipitous. In retrospect, onlookers might have seen that shifts in lending moods indicated that the system was headed for a dangerous fall. And yet those same signs (e.g., asset growth profitability) could also have been read as indicators of greater prosperity in the near future. Lenders and regulators admit they lack the innate knowledge to predict how and when the system will end in a free fall. They long for a tool that could be trusted to forecast when they are headed for trouble, a tool to guide their decision making.