When I’m giving presentations at the moment I frequently say that ‘IT isn’t to blame for this recession – that was the last one’. The milder recession in the early part of the decade was led by a technology business capital expenditure slump, following the dot com crash. However, this recession resulted from a drop in consumer spending after a US housing market collapse – then it spread into the banking system. So this time, IT’s hands are clean right? – we were nowhere near the problem. Well it turns out that perhaps we in the IT profession will have to shoulder some blame when history writes the final version of this economic episode.
A short while ago I raised the possibility there might exist a hype cycle for CDOs. After all, this is a ‘technology’ construct, so it should in theory follow the classic curve. Recently a fascinating article has revealed the software behind the debt collaterlization market explosion and the man who says he was a big part of making it possible. In New York magazine, Michael Osinski portays himself as the man ‘who blew up Wall Street’, because he says he “wrote the software that turned mortgages into bonds“.
Of course we can’t blame his software directly for this recession – that would be like having a mob smash all the storefronts in a shopping mall and then blaming the hammer manufacturer. However it’s worth reflecting on the sheer scale of economic damage that can be wrought with the amplifier of modern IT. We must hope that post G20, our governments can create a technology powered regulatory response of equivalent voracity.
Did IT cause or amplify other aspects of this recession? if you have views I would live to hear them.
3 responses so far ↓
1 Louis // Apr 6, 2009 at 5:56 am
Cause maybe not, but amplify for sure. The paradox in my opinion is that IT could have also been as much a barrier as it was an amplification to the problem. The fact that most businesses do not utilize IT to its fullest extent – especially the free and opensource tails – could even be one of the reasons why this “amplification” took place.
2 Jeffrey Mann // Apr 6, 2009 at 5:59 am
I don’t think that IT people can whistle through this. While they were “only” supporting business decisions, IT systems directly contributed to two important causes of this mess
- overly complex derivatives
- risk management system used to justify those investments.
There is an old cliche that if you really want to mess things up, use a computer which applies here. Bankers would not have been able to create the multi-layered securities which ultimately had dodgy loans at their core without sophisticated computer systems. They would not have been able to get them past auditors and regulators without the expensive risk management systems which actually were designed to whitewash unfathomable risks rather than really manage them.
I wrote about this in October here:
http://blogs.gartner.com/jeffrey_mann/2008/10/06/how-long-before-it-gets-blamed-for-the-financial-crisis/
3 Jude Umeh // Apr 6, 2009 at 7:51 am
Interesting article, and the points above illustrate the real role of IT, as an enabler, amplifier or agent of change, albeit for better or worse.
This was also echoed in my somewhat more forward-looking blog post about a recent event on “the Role of IT in a Recession” –see: http://www.capgemini.com/technology-blog/2009/03/crunch_it_the_role_of_it_in_a.php . The main focus was, and should still be, very much on how IT might be used to help individuals and organisations adapt and cope better with the current recession.
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