As the Financial Institution's fall one-by-one, I'm drawn to the influence that software is having on Wall Street.
I've long been an admirer of James Goodnight, CEO of business intelligence company SAS, and the SAS culture. The SAS value proposition was originally represented to me several years ago as "We help banks identify risk using data warehouse technology".
So I wondered what role SAS may have had in the mortgage crisis. At it's peak, WAMU, and several other banks were advertising "Mortgage approvals in 10 minutes!" The assumption being that they were using massive data warehouses, like those powered by SAS, to quickly determine whether or not a customer was credit worthy.
But apparently these risk management systems were either skewed to accept unnecessary risk, or they were simply ignored. SAS derives the majority of it's $2B in revenue from Financial Services (yes... that's 2 Billion with a "B"... and they're still a private company) so I was somewhat amused to find this article where Mr Goodnight says:
“It doesn’t really matter what Wall Street wants. They’ve proven they don’t know what they are doing. They’ve made a mess of their own companies.”
“I think we need to get to the point where we don’t worry about what Wall Street thinks all the time because it’s clear Wall Street has not performed at all. Bank after bank has been going under with the exception of Goldman Sachs or JP Morgan Chase”
The latest issue of Dr. Dobb's Journal has an article titled "Is Your Next Language COBOL?", where they report that 70% of Merrill Lynch's business runs on COBOL... a 50 year old programming language. Merrill purchased 5,000 seats of Salesforce back in 2005. They've since been acquired by Bank of America.
Last year, Salesforce was betting big on wealth management and selling into the board rooms of financial instutions. I don't think the latest fallout impacts this strategy negatively. If anything, the re-building process on Wall Street will force a critical review of SaaS and on-demand solutions as they build out next generation infrastructure.
One area worth following closely is algorithmic trading. It's estimated that one-third of all stock trades were driven by automatic programs in 2006. By 2010, that figure will likely reach 50%.
You can draw your own conclusions. Were financial institutions ignoring decision support systems? Were their systems outdated? Is automation moving too fast for humans to reliably intervene and prevent financial disasters?
Thankfully, no one is blaming technology for this mess. If anything, there is a universal concession that "this is the future" and we'll need to deal with it.
The Internet has enabled a globalized economy. Whether or not it makes sense to trust a geographic center of influence for financial services in New York is clearly being called into question.