A centralized financial system means that even if you don't do anything wrong, you'll be impacted by the decisions of other people

For example, the Great Financial Crisis (GFC) of 2007-2009 happened because banks had lent money to people who couldn't afford to pay it back

This decision led to a recession that impacted every single person in the world

Centralization means that there's a single point of failure, and when there's a single point of failure, the entire system becomes a house of cards

For example, the single point of failure in the GFC was Lehman Brothers

Lehman Brothers borrowed hundreds of billions of dollars to speculate on mortgage-backed securities, which are debts that are backed by mortgage payments

The entire financial system was expecting that house prices will continue to go up forever so mortgage backed securities will keep generating cash flows forever

But of course this wasn't the case, because a lot of the people who borrowed money to buy homes couldn't actually pay it back

Financial institutions were lending to LB because they thought of the interest payments as guaranteed income

Their assumptions turned out to be incorrect, mortgage-backed securities failed, banks that lent to LB to buy MBSs weren't paid back, and this led to a ripple effect that hurt EVERYONE in the world

The US government and Federal Reserve had to step in to avoid a total collapse

#Bitcoin fixes this by being a decentralized financial system with no single point of failure