First, a quick definition of the concept. Is there anyone who hasn't heard a feedback squeal which occurs when a microphone gets too close to a speaker? That's positive feedback - the signal is amplified, put out the speaker, picked up by the microphone, amplified... until you either move the microphone away or turn down the volume. Positive feedback can be used to create all sorts of odd sounds in an audio system, but if you aren't careful you'll get a feedback squeal that'll rattle your glasses.
So small inputs over time, can create an oscillating, regularly moving system. A small change in that system can cause runaway feedback, if there isn't anything to damp it out.
What happens when you take a working system and pull off the dampers on it?
Let's look at the mortgage mess for a moment.
In 1999 the dampers were loosened on the system. Credit was made easier to get. Why?
Fannie Mae Eases Credit To Aid Mortgage Lending - New York Times
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
September, 1999. The dampers were released.
And the mortgage market bloomed. You ended up with adjustable mortgages, no-down mortgages, interest only mortgages, all sorts of things designed to get pretty much anyone with a pulse and a phone number into a home. (And you might not even need a phone.)
What do you end up with? A lot of people who can't pay their mortgages. A whole lot of defaults. Banks wobbling - and the Fed tossing massive amounts of money at it.
You're perhaps familiar with the collapse of the Tacoma Narrows Bridge. On paper, the structure was sound. The engineering was solid. It should have lasted a long time... but wind loading on the thing made it heave and shift, giving it the nickname of 'Galloping Gertie'. Apparently it was a real roller coaster when the wind blew.
And then a day came when the wind was just the right speed and direction, and the undamped oscillations of the bridge tore it apart.
Has the wind hit the economy just right yet? We've wobbled and heaved - but it's still standing. The money that's been thrown ... has it damped down the swings, or have they given it all a push?
I don't know. What I'd like to see is the government STOP. Stop with the bailouts, stop with the stimulus packages. Take the time to figure out whether things are getting better or worse instead of blindly doing something - anything - to show they're on top of the problem, and have a cure!
And so the oscillation gets pushed - the system responds - and the whole thing breaks apart.
That's feedback for you...