Where was all of Wall Street’s expensive, supposedly advanced technology when we needed it? Shouldn’t technology have helped to avert the current economic and financial mess?
Those questions probably will prompt years of discussion, but here are a few responses to a query I posted on the popular professional networking website LinkedIn.
Most said that "greedy humans" were unquestionably at fault, not the technology.
Certainly there was "flawed business logic" built into the computer systems, some contended, but the consensus was reflected by one adviser who wrote, "technology is just a tool — like a handgun — used for good or ill depending on how it's directed."
"It isn't the application or the rating system," that's to blame one industry person wrote referring to the technologies and systems used for rating mortgage-backed securities and other investments, "but people's perception of acceptable risk that changed."
Hoping to find something that would help me assign specific blame I turned to a report published this week by research and consulting firm
Aite Group LLC of Boston.
In "Performance Measurement and Attribution Systems: A Vendor Review," author and analyst Phillip Silitschanu examines the capabilities and features offered by each of 11 profiled vendors of such systems.
These applications, it turns out, are generally used by big-firm asset managers — not advisers — to attribute decisions that are made on investments both before and after the fact.
Mr. Silitschanu wrote that such systems calculate many risk measures, including alpha, beta, information ratio, R-square, standard deviation, Sharpe Ratio, tracking error, and Treynor Measure.
"Risk management systems came into play because the systems could catch potentially rogue traders, rogue trades and machinations that people had and so they began to give people this false sense of security," Mr. Silitschanu said in an interview.
"The asset managers and bigger firms in turn failed to focus on the idea that we might just be making bad decisions," he added.
In other words, despite all the fancy technology designed to detect errors or fraud, the people making decisions either ignored the output or manipulated it.
One respondent put the issue succinctly: “Technology is only as good or as bad as the man or woman behind the keyboard."
