Less than a month ago I discussed the disaster being experienced by the Royal Bank of Scotland (RBS) and its Irish subsidiary as a result of a software installation screwup. For RBS the nightmare continues as it now calculates the huge losses it experiencing as a result of the technology meltdown, its “mis-selling” of interest rate derivatives, and its role in the Libor scandal.
Todays financial institutions are totally dependent on their technology systems, and if rigorous, darn well near perfect, discipline is not observed then things can go wrong, sometimes horribly so and in unpredictable ways. And things often do go wrong.
Now we have Knight Capital, a key element of the trading infrastructure, creating havoc on the stock exchange–not for the first time either–as a result, predictably, of yet another premature installation of a new software system. The company suffered a $440 million loss on Wednesday. Even more importantly, it has caused chaos on the stock markets.
So here’s the point: such “unexpected” events are not “Black Swans” (the usual financier’s excuse for avoiding responsibility). They are inherent in the complexity of modern finance. And they can become catastrophic, as RBS will now surely attest.
I don’t care what a CIO or even a CEO might say: if they claim that they can eliminate the real risk of such missteps, they just don’t know what they are talking about no matter how good they are. And if such missteps are inevitable, then we simply cannot avoid the question whether the dangers posed by large, complex financial institutions and systems could outweigh their benefits.
This question demands careful, detailed and informed answers and credible risk management and recovery strategies. The issue cannot be dismissed by the predictable huffing and puffing of the captains of the financial industry.
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Having bounced around Bank of America as a contract programmer in the 1990s, I can agree with your comments. The problem is the same as describing some large animal in a pitch-black room. You get five seconds to feel, then you have to leave…come back, another five seconds…out of all the “feels” you’re suppose to describe how you will make the beast do something useful, to management. And since management never gets inside the darkened room, always…OK!!!
Oh, dear. Background: Years ago I built a software company that developed and sold software for the express purpose of software configuration management; that means tracking/managing changes and bug fixes in big software. Customers included major banks, Ford, Wal-Mart and folks of that ilk. So I do know software. Big software will always have bugs. True. Testing rarely covers all possible paths which real world interactions might take. But, all that aside, if the details were managed in ledger books with armies of people, errors would presumably also be made. Possibly different types of errors, but errors nonetheless.
My question to you is… haven’t the Bank of China and the Bank of Japan been valuable partners to their countries and their economies? Could that value be achieved with a host of smaller banks? Huge banks have credibility and weight that enable them to stabilize otherwise fragile environments. They are imposing and sometimes a bit threatening. The difference being that those banks are tied to their governments in ways ours are not. I would like to think that one or possibly two big banks could be valuable to the US, but given our national experience, it doesn’t look like we can have that advantage without a host of disadvantages and dangers that big banks pose. Tis a puzzlement.
This phenomena is so embedded in large scale systems development that it has taken on the appearance of tragi-comedy. Consult Brook’s “Mythical Man-Month” or any of the gurus. They universally suggest 80% of these projects fail, come in over-budget or don’t deliver a pay-off. I have been doing management reviews as a consultant for 35 years and could count on one hand the number of well-executed projects worthy of admiration. And don’t think you can C.Y.A. by hiring Deloitte, IBM,et al. They are screw-ups on a logarithmic scale; most disgruntled clients keep their mouths shut after the first million $$ in fees. There are only a few Frank Lloyd Wrights in any era and software is no different. The really good stuff is the lengthened shadow of a single man uniquely capable of fielding a class A team on the field. Ditto for football, reversing a recession, building Apple or a Microsoft, fighting a war, or rebuilding the Pentagon. We idealize the few who can do it,as if they are ubiquitous, not realizing 90% of IT folks are by-and-large members of a Confederancy of Dunces. I suggest re-reading the “Chronicles of Doo-dah” if you don’t get it.I know the truth seems painful but failure is death.
Shall we even approach the gorilla in the room?
The so-called ‘Structural Unemployment Problem’ blamed in all quarters by a handwringing, shoulder shrugging confederacy of dunces for the pitiful state of the US economy. But which has largely been created by now ubiquitous software programs that can’t match Candidates with Open Positions even if you write a CV with the job description itself in the body text?!
Oh, I forgot. We’re in Blame The Victimland. Where greedy Main Streeters screwed the global economic system by taking advantage of those poor Wall Streeters at origination, and where MILLIONS of people ‘just don’t have the right experience’, gosh darnit!
Loved your comment, Miss Honeychurch! Yeah, seems like there is amazingly little realism in the common bromides (and “black swans” is a good one there, Mr Baxter!).
I’m SOOOO glad I’m employed and not on the job market where tons of capable people are deemed unemployable, but I know I am just lucky.