Financial Fact and Friction

Forget about the frictionless high-tech economy—how about a little more friction instead?

In between flights recently, I caught tidbits from CNN at the airport on the continuing subprime-mortgage meltdown. In the stories about hapless homeowners facing ever-rising mortgages, there was an undercurrent of the unknown.

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The biggest unknown: Exactly how serious is the mortgage crisis in the financial markets? How were all those mortgage bonds distributed to second- and third-party brokers, banks and securities firms? How was it that you could get a top mortgage company like Countrywide Financial, on one day, contending it was above the mortgage fray and, the next day, saying it was tapping its entire $11.5 billion credit line to provide liquidity?

Financial organizations have always been big computer purchasers. They are usually among the first to install the latest supercomputers and big storage servers to process and track the millions and millions of shares traded each day. In the last couple of years, computing attention has turned to "quants": quantitative analysts who contend they can model the entire financial market and would love to talk to you for hours about stochastic calculus.

Yet, despite all those quants and all that computing horsepower on Wall Street and elsewhere in the financial world, it is increasingly evident that no one really knows where the money goes, how it moves and how much the leveraged buyout firms really have in their wallets at the end of the day. Why is that? Wasnt all this computing purchasing supposed to result in a frictionless economy where the movement of money and other financial instruments slides seamlessly through the worlds economy and everyone can sleep well at night knowing how much money is in the bank?

When I add up all those CNN tidbits and wild swings on Wall Street as quant-driven computer trading tries to track the untrackable, I have to conclude that all the computing horsepower has been aimed at making money move faster with little regard for trying to settle accounts at days end.

A computer is an obedient device that will do exactly what you program. If your goal is to track the flow of money after it gets splintered into the worlds financial markets, then that is what the computer will do. If your goal is to accelerate that money movement and not really be concerned about where the funds go after they leave your company, then you will get what we have: a lot of panicked investors and corporate managers unable to say where the money has gone.

Forget about the frictionless economy and lets count on building some friction based on accountability and concern for customers who want to know where the money went.

Editorial Director Eric Lund­quist can be reached at eric.lundquist@ziffdavisenterprise.com.

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