Many months ago, I agreed to speak at a Global Association of Risk Professionals (GARP) NY Chapter meeting on Systemic Risk Regulation and Taxonomies and last night, in a packed room of 200+ people, on the 30th floor of the Reuters Building on Times Square in NYC, on one of the warmest evenings in October, when I would rather be out playing tennis with my son, I fulfilled that agreement. And it was a lot of fun.
The audience was a mixed crowd of current, out of work, and hopeful Risk Professionals from the NY area. The room had a stunning view of Times Square facing North and the Hudson River facing West. It was modern, 21st Century clean, with professional rows of seating, a raised platform on stage, two huge mirror screens with my presentation, and a wide open reception area to the rear. GARP really knows how to put on an event!
My presentation (available here: http://www.garpdigitallibrary.org/display/displaychapter_meetings.asp?yr=2009) focused on some things I've learned the past year looking at the Financial Crisis, Systemic Risk, Regulatory Information Architectures, and the Danish Mortgage Model. I used several charts from my friend Alan Boyce, who has been a tireless advocate for the Danish Mortgage Model in America, and to be honest the audience found this material the most interesting. Truth is, with 12% foreclosure rates across America and 9.8% official unemployement (17.6% including those who are underemployed, or no longer even looking for employment), our recession is far from over. Normal foreclosure rates are 3-4% and can rise to 6-7% in a recession, due to rising unemployment. This recession started with 12%, hasn't abated in 18 months, and could rise to as high as 20%. The non-GSE mortgage market in America is dead since July 2007. All current mortgage reform measures are small-bore band-aids that are not working. Financial Regulatory reform that addresses market risk taking and compensation packages are addressing the symptoms of our problem not the cause. The cause is a mortgage system in America that has been inefficient for decades, is now broken and discredited around the world, and can only be rescued with a totally new model.
I've written on this page before about the Principle of Balance Mortgage Model and I encourage everyone reading this page to learn about it:
Thank You GARP for the opportunity to present at such an excellent event.
Adler on Data Governance
DataGovernor 120000GKJR 1,785 Visits
Recently, I played tennis with my son. At 16, he's tall and lanky like me, but full of boundless energy and I have to play smart to keep up with him. I taught him most of what he knows in tennis and we both play at the same level - though I do enjoy when he wins. But on this day, there was no winning or losing. Our rallies were endless. We exchanged vollies, drops, topspin, and slice. If I won a point, he came back and won the next. There was no mercy and no letup. At one point, he sliced a ball low to my mid-court forehand and I had to rush from the backhand side of the court across to reach it. I'm not as fast as I once was but on this day I crossed the court with speed. As I got to the ball and lined up a chip drop, I looked up and found that my intrepid son had already anticipated that move and was rushing to the net to cut me off. I stopped short and just laughed. I said "you know what I'm going to do next, don't you," and he said "like, yeah, I know all your shots." That happens when you play with your son, because we know each other so well.
We played out the rest of the match and after I thought about that laugh we shared at the net as a metaphor for much of what I've learned about Data Governance, Risk Measurement, the financial crisis and the challenges of information and knowledgeknowlegde. You see, people are best at anticipating what they expect - especially in situations that breed familiarity. That's the reason why Value at Risk (VAR) was such a seductively attractive formula - in a largely pro-cyclical business culture, a formula that helps you anticipate what you expect (that today will look mostly like tomorrow, yesterday and the day before) is a winner. People who anticipate other outcomes are either brilliant visionaries who make "discoveries" (minority), or outliers who make trouble (majority).
I began the year thinking that financial regulatory authorities could make better policy decisions if they had the right data. But I now understand that many of them had the right data in 2005, 6, and even 7 but they didn't understand it, chose to ignore it, or lacked the political will to make radical, outlier, decisions that would adversely effect many key constituencies.
Hence my conclusion: Data Governance isn't enough. Collecting and aggregating data is an important step, but people need to understand what the data means as information, and that information needs to be communicated widely as knowledge. Not the finite biological knowledge we all have in our brains - the organic translation all of you reading this article are performing right now - but the metaphysical knowledge of a community knowing a common truth about the world so they are prepared to accept a decision to avoid an outcome they did not expect.
I don't care what kind of new Systemic Risk Council gets built at the Federal level of our government, or indeed what kind of new Regulatory Information Architecture is designed to support it. All of that is important but not as important as the steps people take to disseminate the information in both raw and interpreted form to a wide and varied constituency. The more people inside and outside the group that know what the group knows the better chance we have that outliers will interpret things the group will miss. And it is upon those outliers - the ones who anticipate what we don't expect - that crisis prevention most rests upon.
This last point is the hardest. In the financial crisis, only a few economists like Nouriel Roubini predicted the credit crisis before it began. Most of the other economists predicted it perfectly only in hindsight. But Nouriel was largely ignored by those economists and the media as "Dr. Doom," the naysayer who only saw the bad while so much good was going on. And that is human nature. If you aren't in the tribe of believers you are a barbarian, an outsider, who can't be trusted and must be demonized or destroyed.
This is of course very bad for the discovery of non-expected results, unless of course you ARE a barbarian trying to hack your way into the group in which case you should be destroyed. Trusting what you know, where it came from, where its going, and who's going to know it and do something about it will require new forms of transparency and self-governance. George Orwell wrote about the alternative, and we don't need to follow his example.
Because what we want is Trusted Information that empowers Doubt. Doubt about what information means is essential to effective decision making. And this is where I think a new Information Governance discipline, one that focuses on the Information needs of Governance as well as the challenges of Governing the use of Information is needed.
That's at least what I learned from my son on the tennis court last week. We'll see what he teaches me today.