Since this is a Gartner blog, I won’t comment here on the ridiculous finger-pointing going on in the wake of the banking
bailout rescue efforts (but I might here eventually). However, I miss a connection closer to home which to me at least seems inevitable. What is the role of IT in creating or at least exacerbating this mess? So far I’ve heard blame spread on Democrats, Republicans, Eurocrats, greedy yuppies, deregulation, over-regulation, stupid consumers, and an overabundance of capital in the system. Not much mention of IT’s role, but I don’t think that it will take much longer for the searchlight to swing around to us.
With all those millions invested in compliance, risk management and business intelligence software, how did this mess seemingly come as such a big surprise? I suspect that it wasn’t a surprise to those who invested this money wisely. But either the warning signs were ignored, or the software was used to justify or mask ever-riskier investments. With the glut of capital in the system looking for a home that produces good returns, the pressure was on to find ways to invest it. Deep understanding of compliance rules or risk management algorithms makes it easier to game the system. And that’s what many financial institutions did. Well, at least the problem of ‘excess’ capital has been solved.
Another explanation derives from the false sense of well-being that comes from automated systems. Back office fulfillment systems make it possible to execute the blisteringly complex financial derivatives thought up by financial wizards. The applications show all of the individual obligations in nice neat columns, giving the impression of control, However, assessing the risk and attaching a valuation to a bank with billions of dollars or Euros of notes based on shaky mortgages goes beyond the capabilities of any computer system. Those comforting reports only show the last level of information. Once the basis of those complex constructions start to wobble, the most expensive reporting systems can’t portray what is really going on. That is a task more suited to a Ouija board or Tarot cards.
Without these back office systems, financial institutions could not have created or executed these complex instruments. Without those compliance and reporting systems showing that they follow the rules, they would not have been allowed. Ipso facto IT is to blame.
I haven’t seen this idea in the wild yet, but I don’t think it will take long. Who has seen similar accusations out there?