chords as well. Could it be that in repeating the same mistakes over and over again, there is something fundamentally flawed in design of the system?

If these essential questions are not straightened out, this flawed pattern will keep repeating itself every five to 10 years. It’s like going on a yo-yo diet, but this time the serious economic turmoil might take much longer to rebound, as most have described this period as worse than the Great Depression. Indeed, excusing these financial cycles as “inevitable” sounds a lot like pardoning computer crashes as part of owning a PC (Apple will definitely disagree with that!).

What seems to be a serious design flaw in the financial system is the built-in egregious misalignment of interests and a zero-sum-game approach. What this means is:

1. The system is designed to reward those who focus only on their own piece of the pie. For example, aggressive mortgage lenders take commission with little consideration if home owners can actually repay their mortgages; investment bankers garner large bonuses with little concern for investors if their assets go down the drain. These industries compensate employees for closing as many business deals as possible, regardless of whether those deals are sound.

2. The system is designed with a built-in conflict of interest. For example, rating agencies are paid by the companies they rate. So much for impartiality. Similarly, governmental regulatory agencies charged with policing these financial institutions receive funding from the very

companies they are supposed to monitor. It’s like students rating a teacher’s performance. Why would teachers choose to give poor grades to students whose reviews can cost them their jobs?

3. The system is designed to be a zero sum game. In order for financial institutions to compete for business, it is favorable for them to underestimate the risks on the investments they promote and leverage aggressively in order to get promising profits and big bonuses. Only the investment bank that wins gets the business. They are playing a win-lose game rather than a win-win one.

With so much financial confusion, it is impossible to create a holistic picture of what is going on. Such a challenge defies even the resources of the governments and financial institutions themselves. Add to this complexity the cryptic financial language that prevents the average citizen from following the financial industry’s intricacies. Eye-crossing terms such as MBS (mortgage-backed securities), CDOs (collateralized debt obligations), CDS (credit default swaps), derivatives, and securitization are thrown around with abandon. (I’ll bet just reading that last sentence gave you a headache.)

How does this all relate to design? The accompanying diagram illustrates the financial crisis in a clear and comprehensible manner. The goal here is not to accurately depict financial industry terms or decipher their detailed operations, but to make the core elements simple to digest by showing the big picture and its correlations to average citizens like ourselves.

What Does Design Have
to Do with It?

Design is defined on one level as the blueprint for artifacts and products like brochures, tooth-brushes, websites, and software, among others. However, as Nobel Prize winner Herb Simon explains: “Everyone designs who devises courses of action aimed at changing existing situations into preferred ones.” When we look deeper, design is actually about designing human behavior—how people interact with products or with other people. It’s only through understanding people and behavior that we can design systems that work. So one can easily borrow this attitude and approach on a much more macro level of design: clearly representing how consumers interact with investment banks, financial experts, mortgage lenders, and so on.

I would say that design can be defined in the financial crisis on four levels:

• Design, as in human-centered design, is an approach that has empathy for people and takes into consideration the needs and perspectives of people using the products and services we design. The financial institutions that designed and distributed faulty products into the market did not care about their end users. This ties into ethics, and human-centered design, as we know it, has the right end goal.

• Design, as in design with a holistic approach, looks at problems from a big-picture perspective, taking into account interests of various parties and the interrelationships between the entire system. This holistic approach in problem solving cuts