Computers don’t work when you lie to them
September 22nd 2008
Here is a terrific (but depressing) article by Saul Hansell explaining how the Wall Street meltdown was fueled by feeding nonsense to the risk management systems in the big investment houses.
The systems did not have models of those weird derivative instruments being traded, so traders would say they were trading a generic (safe, well-understood) loan instrument. So the systems did not really model the risk.
I find this really heartbreaking. I have to believe some people behind the scenes knew what was going on, and I can imagine them losing the argument with their bosses when they tried to fix things. Continue Reading »