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IT Could Have Caught $2 Billion Rogue Trader
superapecommando writes "With the benefit of hindsight, IT experts are claiming that technical countermeasures at Swiss bank UBS could have stopped rogue trader Kweku Adoboli running up a $2 billion loss." If American Express and Visa can mine transaction data and put a stop order on credit cards when you unexpectedly buy gas out of state, it seems like there could be patterns to watch for when the amounts are in the billions, too.
A problem is that it's difficult to design a system to automatically determine "risky" or "rogue" or "non-normal" behavior in investment banking, because taking crazy bets is what they do, and interpreting their official policies loosely is a big part of that. Sometimes it turns out massively well, in which case bonuses all around; other times very badly, in which case start looking for ways to label the guy "rogue" and fire him. But it's de facto, if not officially, part of "normal" operation of an investment bank; it just sometimes turns out badly.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
When a financial boo boo occurs, and IT is involved, it's IT's fault.
When a financial boo boo occurs, and IT is not involved, it's IT's fault.
Computers have a tough time defending themselves, so it is easy to pin the blame on them.
Maybe Watson, IBM's Jeopardy champ, could handle this:
"What . . . is a 'Scapegoat'?"
Schroedinger's Brexit: The UK is both in and out of the EU at the same time!
Because that would be fair. The whole thing is to privatize profits and let the public pay the bills. And by the way there is too much money on the market to really invest all that money and get something in return. But it is not only the financial market. You can found companies and relay responsibility for bad business decision to the banks, stakeholders etc. To make things right, the size of organizations in the financial and business area have to be limited.
I remember a highly compelling thought experiment published in the New York Times editorial page, back when the economy was first going south - a though experiment which, the authors later revealed, was more real-world practice than experiment.
The way big risks and 'trendy' trades often work is this: if a certain method of investing your pool looks good and other traders in the firm are making big money on it, you have two choices. You can go against the prevailing wisdom, but should you lose then you're the idiot who lost $10 million and you're fired. You can also go with the trend, in which case either you all win together or the entire company (or entire economy) goes down in flames and you're no worse off - in reputation or employment - than anybody else.
My point for bringing this up is that it's not about random idiots going nuts; even if that happens it's just one idiot or one company that dies, and at least they're all the 'rogue' idiots are effectively sociopathic, conflicting entities. The real damage comes when every trader agrees on things; sooner or later it's all coming down, and the rest of us go down with them.
So frankly I think it's *great* news that this guy lost $2 billion; at least it means UBS isn't so locked-down that individual traders can't take risks. Better they learn from giving traders too much freedom than we all learn from them being given or being taught too little.
The blame should be placed squarely on the shoulder's of the bank administrators. There is absolutely NO EXCUSE for not noticing a 2 BILLION DOLLAR LOSS.
It's not the computers.
It's not the traders.
It's not the system.
It's the BANKS ADMINISTRATION.
And it's high time that those lazy incompetent greedy bastards were held RESPONSIBLE for their incompetence instead of getting "bonuses."
I do not fail; I succeed at finding out what does not work.