From Wall Street & Technology, a short article on one of the big focuses for Wall Street IT spending in 2008, risk management systems.
From the article:
Integrating data and risk practices across a financial institution is pricey and difficult, especially in “Wall Street” time, where things are measured quarter to quarter. However, the price tag for even the most complex data and risk management integration at the largest financial institution will pale in comparison to the billions that have been lost due to inaccurate CDO calculations.
While the article makes sense overall, the idea that billions have been lost on “inaccurate” CDO calculations is not entirely accurate. I’m sure that happened in some cases, but these models are driven by assumptions and there is still risk from the fat tail. The current housing default rates were simply not seen as even remotely probable when the subprime securitizations were structured.