Comments: Why (my, all) financial systems fail -- information complexity

That's a helluva thesis ya got there. Enclosing their gardens with walls of complexity. Which is great, until those walls collapse on you.

Posted by Patrick at December 11, 2011 08:28 AM

Complexity is also frequently taken as a snakeoil in security (complexity as form of obfuscation as to what is really going on) ... along with exploits tending to being proportional to complexity (would contend that the snakeoil analogy isn't just limited to security business).

In the US there has long been periodic rant about military-industrial-complex ... recent item was that Eisenhower originally was going to say military-industrial-congresional-complex (MICC), but shortened it at the last minute. There has been frequent items that DOD has been leqally required for decades to pass financial audit ... but has yet to have one (claims that it amounts to unaccounted trillion during the last decade)

I've used an analogy for FRCC ... or financial-regulatory-congressional-complex.

I remember original draft of Basel-2 having both additional quantitative measures as well as a new qualitative section ... which basically required top executives and board being able to demonstrate end-to-end understanding of the business processes ... sort of combination of ISO9000 and Sarbanes-Oxley ... but the new section effectively disappears during the review process.

Posted by Lynn Wheeler at December 11, 2011 10:22 AM

oh and finishing up reading: Confidence Men: Wall Street, Washington, and the Education of a President.
http://www.amazon.com/Confidence-Men-Washington-Education-ebook/dp/B004OVEZ8O

One of the items is new governor of the New York Fed comes in the early part of the century and at one of the first NY FED advisory board meetings, Shiller explains how the real estate market is in big inflation "bubble" and will be do for burst. The new New York Fed governor replaces Shiller on the advisory board (part of allowing the bubble to reach truly epic proportions).

Posted by Lynn Wheeler at December 11, 2011 04:06 PM

Don't hold your breath, but don't despair either http://www.newscientist.com/article/mg21228421.300-bank-says-no-ditch-the-bank--borrow-from-the-crowd.html

A Merry Christmas!

Posted by Prosper and Despair (from Twan) at December 12, 2011 12:26 PM

Iang,

Thank you for this.

This is probably the best thing you have committed to paper. You should be ashamed for disclosing such insight.

Posted by KatzGlobal at December 13, 2011 04:56 AM

I came here from google (searching for the Gorton quote), at first I thought the title of your whole blog referred to this obscuring of financial data that is described here :)

Posted by Zbigniew Lukasiak at December 19, 2011 10:45 AM

analogy for the current financial infrastructure that it is heavily populated with vampires sucking the blood out of the world and would be destroyed by sunlight (transparency and visibility) ...

http://curiouscapitalist.blogs.time.com/2010/04/16/sec-goldman-is-actually-a-vampire-squid/ ...

http://www.phibetaiota.net/2010/11/review-griftopia-bubble-machines-vampire-squids-and-the-long-con-that-is-breaking-america/ "confidence men" makes the case that open exchanges would also help eliminate vampire (lots of the illegal and quasi-legal) activity ... also "No One Is Above The Law" http://baselinescenario.com/2011/12/22/no-one-is-above-the-law/

recent posts mentioning need for transparency and visibility to correct much of the finanical infrastructure:
http://www.garlic.com/~lynn/2011p.html#70 ..
http://www.garlic.com/~lynn/2011p.html#87 ..
http://www.garlic.com/~lynn/2011p.html#92 ..
SEC: Goldman Is Actually a Vampire Squid | The Curious Capitalist | TIME.com
A few weeks ago, I did a blog post questioning whether the mega-profitable, much-hated investment bank Goldman Sachs really methodically set about putting together mortgage-backed securities that woul...

latest on the lack of transparency and visibility
https://plus.google.com/u/0/102794881687002297268/posts/N8BTQJjVK8j

The lack of transparency means we don't really know what the exposures of major U.S. financial institutions are, and we very much have to be concerned about the possible negative repercussions.
http://www.bloomberg.com/news/2011-12-22/bankers-complaint-of-uncertainty-obscures-reluctant-disclosure.html

Posted by Lynn - vampires in financial infrastructure at December 27, 2011 02:45 AM

So much for triple-entry bookkeeping. Washington Mutual Bank failed because five-entry bookkeeping with five certified and notarized physical copies of each entry, carried under armed guard to separate locations, kept under lock and key, and continuously monitored by 24/7 tamperproof video surveillance, with multiple redundant access logs, was not even close to adequate for guaranteeing the integrity of financial transactions.

Posted by Justin N. Lindberg at January 28, 2012 12:58 AM

Justin,

If someone is going to steal, triple entry will reveal how they did it. Double entry can do that too, but it is not concrete like triple entry, it's possible to futz behind the scenes if you have access to the computers.

Posted by Iang at January 28, 2012 01:20 AM
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