BI and the International Financial Crises

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BI and the International Financial Crises

Post  mmoayed on Sun Mar 01, 2009 9:38 am

Good Day for all,

I believe that having the information is the key for successes and is also the key for taking the good and fast decisions.
Someone was saying that BI technology is nothing to do with what I have said above ,and the international financial crises is a proof of what he is saying .

My opinion was against him and I have explained that the technology it self is good but the problem is from the people who are reading the data and also the problem is from implementing the BI projects .

What do you think of this ?
Do you believe that BI can help with any crises world might face or any big or small company Or it is just bad investment and we can not do anything and the proof is the International Financial Crises ?

Note: I suggest to create a new folder for General Discussion .

Regards,

mmoayed

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Re: BI and the International Financial Crises

Post  BoxesAndLines on Sun Mar 01, 2009 11:49 am

Nope. People misinterpreting data was the problem. Take Bear Stearns for example. They've been packaging Alt A loans and subprime loans for securitization for years. Mix a few bad loans with a few good loans, and then your resulting bond goes from junk to A+ paper. Obviously, their estimation of the risk, as well as the rest of the stiff shirts providing CDO's and CMO's was way off base. A failed business model is no more, no less. It's just unfortunate that this one is so painfully large.
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Re: BI and the International Financial Crises

Post  mmoayed on Sun Mar 01, 2009 1:44 pm

Yes, I agree with you .As you said that was "A failed business model is no more, no less".
What do you think what are the steps to overcome such a problem?

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An Issue of Trust

Post  Todd McDermid on Mon Mar 02, 2009 4:41 pm

The steps needed to prevent the problem from occurring are quite simple, and unfortunately, will someday be overlooked again - it's human nature. Forget about the inherently risky nature of subprime mortgages, and why those loans were given out. Sure, that's a risky business, but as long as people (banks, funds) know it's risky, that's "OK" because they can manage that risk.

At it's core, what is happened/happening is an issue of trust.

The organizations repackaging the securities had accumulated a great deal of trust from their customers over the years by doing things right. I believe this trust was earned - as it should be. The employees (managers, everyone) in those firms had also earned the trust of their organization over time - again earned as it should have been by doing things right. Then some elements of those organizations betrayed that trust - they repackaged risky financial instruments with stable ones to arrive at a marketable "stable" product. Maybe they rationalized it by telling themselves it wasn't that much of a risk, or a risk their customers wouldn't understand, or that "everyone else was doing it," or "if we don't do it, someone else will, and we'll lose business." They abused the trust that they had earned from their customers, telling their customers that these new products deserved to be treated as safe investments when they knew they were not. The customers trusted those proclamations, and their customers did the same - a chain reaction of trust that had been subverted from the "source".

Once the lie was uncovered, it was found to have impacted the decisions of thousands of organizations who had relied on the trustworthiness of the securities organizations. This started the "trust crisis" - as the problem we're having isn't really a "financial crisis", it's all about trust. Banks don't want to loan each other money - because they don't trust that the bank they loan the money to will be able to pay it back - even though they have in the past, and have never lied to them before. All because they were burned by someone else they trusted. So now every bank is "tainted" by mistrust, regardless of what they say. All that "earned trust" has been thrown out because they've been shown that it's apparently worthless, and has to be earned again. If you've ever been lied to about something big by someone you REALLY trust, you'll know you suddenly trust everyone else less right away.

We'll solve this problem over time - banks and other financial institutions will start to trust each other again as they again build relationships "from scratch". The problem is that sooner or later, somebody will decide to violate that earned trust again, and there is NO WAY to prevent that. Governments can't regulate trust. A senate subcommittee can't "oversee" trust. An industry "watchdog" group can't detect lies. By its very nature, something like this happens because we trust that something is being done properly - regardless of the number of checks and audits in place. Regulations can be ignored, oversight can be misled, watchers can be misdirected, and audits can be bamboozled.

I'm not saying that we shouldn't consider all of those options as measures to reduce the probability of trust being abused again. I'm saying that abuse of trust like happened over the subprime mortgage repackaging WILL happen again, regardless of all precautions. Governments around the world are attempting to do three things:

1. Tell all the banks and financial institutions this was an isolated incident, and to stop distrusting each other. Their main vehicle for doing this is throwing money around, to show that "we trust you!"
2. Putting stiffer regulatory regimes in place.
3. Packing their "stimulus" packages with pork.
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Re: BI and the International Financial Crises

Post  mmoayed on Tue Mar 10, 2009 9:25 am

Yes, it is and issue of trust now and bad in administration in the past .
But, how can world utilize the information they have now to create new International Financial system that will take in consideration all the mistake cause this crisis.

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Re: BI and the International Financial Crises

Post  Todd McDermid on Wed Mar 18, 2009 6:02 pm

mmoayed wrote:Yes, it is and issue of trust now and bad in administration in the past .
But, how can world utilize the information they have now to create new International Financial system that will take in consideration all the mistake cause this crisis.

I don't think they can. Again, the issue is trust.

Whatever you have there will always be a situation where:
1. Responsible people build regulations, system, checks and balances to monitor the system.
2. People participate in the system responsibly (within the spirit of the rules) and earn trust of the other people and the "regulators" (formal regulators such as the SEC and informal such as the media)
3. A very few irresponsible people find a "loophole" somewhere and exploit it for personal gain. This "loophole" is an act that follows the "letter of the law" but violates the "spirit". The loophole (by definition) is not visible to the regulators, system, or checks and balances - by poor design. (But you can only say it's poor design in hindsight.)
4. The irresponsible people are able to exploit the loophole because they are masquerading within the trusted system as trusted people - because they had earned that trust legitimately by following all of the rules... until they found the loophole.

From the above scenario, it's quite obvious that ANY system, regulation, check, balance, report, investigation, oversight,... there will always be a loophole found sooner or later. Humans are just too ingenious.

The ONLY way to eliminate this is to eliminate trust. And I'm afraid that's not possible. Civilization would cease to exist without trust - even on a purely financial level. Imagine trying to buy some milk without financial trust. Obviously, credit can't be used - the vendor can't trust it's legitimate. The same goes with cheques or money orders. Cash? Nope - the vendor has to trust that it will be worth something when they go to use it (trust in the issuing government). Gold? Now we get to the real problem... who says it's really gold? Now the vendor has to have a gold purity lab on the premises. And if he doesn't trust the lab equipment manufacturer (why should he?) then he has to build his own. And on, and on, and on. So now it takes several hours, and about ten people to take your payment for a jug of milk.

The bottom line is that there has to be trust in order to have human interactions work - most of the time. A corollary to that is that sometimes some humans will abuse that trust. Abuse can not be eliminated, only reduced somewhat.
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Re: BI and the International Financial Crises

Post  VHF on Tue May 12, 2009 11:10 am

Todd, thanks for sharing your thoughtful insights!

This is why integrity and accountability in both business and governement are so crucial.

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Re: BI and the International Financial Crises

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