How Wall Street Lied To Its Computers
QFT:
The people who ran the financial firms chose to program their risk-management systems with over-optimistic assumptions and to feed them oversimplified data.“There was a willful designing of the systems to measure the risks in a certain way that would not necessarily pick up all the right risks."
"How Wall Street Lied To Its Computers" [NYT Bits Blog via Mike Elgan]
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It goes to prove that a program is only as good as the requirements. And if you decide to fudge your requirements a bit, then you get what you build. Computers will always tell you only what you want to hear if you tell them that's all you want.
@B: It's not as simple as giving computers bad data. These were complex financial derivatives, and they often wouldn't fit "in the box" for the computer models that monitor risk. The banks would have to dumb down assumptions to be able to track these instruments.
but mommmm! I don't care about risk, I wanna make money noooww!
In the immortal words of P. Picasso (who was never called an asshole): "Computers are useless, they can only give you answers."
This points to the exact same mentality that we've had for quite some time: do whatever makes the most money now, and to hell with the future. I guess everybody just thought it would take a lot longer for the future to get here.
I think most of these Wall Street types have never watched 2001.
@orielbean: Gosh, I've been called an asshole plenty of times. Too bad I'm now excluded from giving profound advice. :(
"If the sun doesn't rise tomorrow, you've got more important things to worry about"
-Me
Applekid, have you heard the song? obscure reference...
Repo Man.
But I had to Google the band: Modern Lovers.
And the song was called "Pablo Picasso", BTW.
Sorry, the Repo Man version was a cover by Burning Sensations.
I'll shut up now.
No worries.
We will still have investors, management types, etc. coming up on the mass media who WILL try to blame computer programs for our economic problems today instead of themselves.
And there will be people (hopefully not the readers of the Consumerist) who will believe them.
you know what (i think) caused this? LITTLE OR NO TRAINING!!1! seriously, i had a retail manager once that quit to work for a mortgage broker. his training? 2 weeks in ft. lauderdale during bike week. no lie.
(separate story from ft. lauderdale dude) i've seen this first-hand. imagine this powerful software that can track assets, debts, payment history, credit utilization, score, etc., etc., but the person in charge (1) doesn't know how to use it (2) doesn't think it's worth the time to learn & (3) doesn't like the answers it gives when it's used properly.
so what do they do? they manipulate (by simplification or elimination) the info they input so that they get the answer they want. then they use the OK from the software to justify disbursing a loan (or whatever). they preordain the future of that loan.
fast forward 2 years: delinquencies balloon to 12% of total portfolio (from somewhere around 1%). nice huh? luckily they're back around 1% (& that person is no longer in charge, if you know what i mean).
his training? 2 weeks in ft. lauderdale during bike week.
Must have been strange since Bike Week is in Daytona Beach, 250 miles up the road.
Garbage In Garbage Out.
It is a principle that far too few people understand, and it applies to all processing of information, whether automated or not.
Wow. Letting computers make decisions for you is one thing, but giving the computers bad data to make the decisions from is downright criminal.