Wall Street Risk Analysis
I subscribe to the Computer Risks Forum, which provides me with an e-mail digest on a ruffly biweekly basis of all the foibles that can arise in the wonderful world of computing when people don't thoroly think thru the foreseeable consequences of their decisions and actions.
Occasionally the Forum gets to exonerate the computers, too, instead following the HAL 9000 dictum "It's always been human error.". One such message was the best analysis I've seen of the recent meltdown in the financial markets, so I thot I'd share it with y'all.
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From: Martin Ward
Subject: Re: Wall Street; where nothing can go worng wrogn wrgno....
A lot of the comments in RISKS-25.34 seem to imply that the people running the financial firms were stupid and/or careless in not doing a correct risk analysis.
These people are not stupid or careless, merely greedy, unscrupulous and irresponsible. They did a careful risk analysis all right, and then made the decision to deliberately feed false information into the computer models and deliberately create massively complex financial instruments.
Their risk analysis looked like this:
Success: My company hands off the package before it blows up. My company makes a massive profit and I end up fabulously wealthy. (Other companies make massive losses and have to be bailed out by the government, but that is incidental.)
Failure: My company ends up holding the package when it blows up. My company makes a massive loss and ends up having to be bailed out by the government. I end up extremely wealthy.
After careful consideration of all the risks and benefits, I decide to go ahead!
In an ideal world, the risk analysis would look like this:
Success: My company hands off the package before it blows up. My company makes a massive profit and I become fabulously wealthy. Other companies make massive losses and have to be bailed out by the government. My company, and all the others, gets investigated and I end up bankrupt and jailed for many years.
Failure: My company ends up holding the package when it blows up. My company makes a massive loss and ends up having to be bailed out by the government. I become extremely wealthy. My company, and all the others, gets investigated and I end up bankrupt and jailed for many years.
Occasionally the Forum gets to exonerate the computers, too, instead following the HAL 9000 dictum "It's always been human error.". One such message was the best analysis I've seen of the recent meltdown in the financial markets, so I thot I'd share it with y'all.
= = = = = =
From: Martin Ward
Subject: Re: Wall Street; where nothing can go worng wrogn wrgno....
A lot of the comments in RISKS-25.34 seem to imply that the people running the financial firms were stupid and/or careless in not doing a correct risk analysis.
These people are not stupid or careless, merely greedy, unscrupulous and irresponsible. They did a careful risk analysis all right, and then made the decision to deliberately feed false information into the computer models and deliberately create massively complex financial instruments.
Their risk analysis looked like this:
Success: My company hands off the package before it blows up. My company makes a massive profit and I end up fabulously wealthy. (Other companies make massive losses and have to be bailed out by the government, but that is incidental.)
Failure: My company ends up holding the package when it blows up. My company makes a massive loss and ends up having to be bailed out by the government. I end up extremely wealthy.
After careful consideration of all the risks and benefits, I decide to go ahead!
In an ideal world, the risk analysis would look like this:
Success: My company hands off the package before it blows up. My company makes a massive profit and I become fabulously wealthy. Other companies make massive losses and have to be bailed out by the government. My company, and all the others, gets investigated and I end up bankrupt and jailed for many years.
Failure: My company ends up holding the package when it blows up. My company makes a massive loss and ends up having to be bailed out by the government. I become extremely wealthy. My company, and all the others, gets investigated and I end up bankrupt and jailed for many years.
posted by Richard S. Russell | 9:53 AM
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