Monday, September 29, 2008

Accounting vs. Technology - Who’s At Fault

Did technology play a role in the financial services meltdown?

A columnist for a major IT publication documented his positions on the role of IT in the current financial services meltdown. He asked questions such as “Were the internal IT groups in these firms working on projects that were misaligned with the financial services firms’ business strategy?” The article attempted to place blame where it does not belong.

At the heart of a these spectacular business failures rests a complex and intentionally opaque maze of documents that were designed to obscure anyone’s understanding of the true risk involved in the financial instruments being sold. These instruments wrapped up a mix of high, medium and low risk mortgages into prepackaged bundles that few people could understand. Fewer still understood that these mortgage portfolios would be so vulnerable to a drop in housing values nationwide. Over time, we will probably learn that this obfuscation was absolutely intentional. The firms that created these documents and the financial instruments that went with them were built them in a way that few people could ever understand.

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