"Many of these bigger firms don't know what their counterparty exposures are. They don't know how much Lehman Brothers owes them," Wooton adds. (A counterparty is any organization with which your company has some kind of relationship with, be it as partner or as a client.) Duncan agrees: "No matter which part of the ecosystem you are talking about, companies don't know what their counterparty exposures are." IBM is in the midst of working with its Asian clients to root through what their exposures are.
Retail algorithms may be reused for financial services
Although much of the technology already exists that could have tracked and helped to at least forewarn companies of the dangers ahead, IBM is also looking at retooling some current technology that uses sophisticated algorithms to map processes to help increase the visibility into risks of financial instruments that are dispersed globally.
Up until now, technology in the financial services industry has been focused on capacity -- whether an application can handle high volume and volatility -- rather than on process. There is no process flow map that tells organizations who owns what pieces of what risk.
But in the retail industry, there are such flow mapping technologies to track, for example, that consumer A buys a car and then two years later sells that car to consumer B, who in turn sells his car to consumer C, while consumer A buys a new car; the software maps all of those processes for the sake of tracking buyer behavior. By scanning through the Web and physical public documents, a retailer puts together a point of view on a customer's buying behavior. "That kind of process mapping hasn't been unleashed to track the whole world of institutional behavior," Duncan says. But perhaps it could.
Of course, even with the right technology in place, Greenbaum cautions, it will do no good unless meaningful government oversight is put in place so the financial services companies can't again -- through ignorance or deceit -- so wildly create and distribute toxic assets.