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EDN Europe's Editor Graham Prophet posts a selection of comments and insights prompted by the many items of industry news and rumour that cross the editorial desk or are gathered on his frequent travels to interviews, press conferences and events around Europe - and further afield - and somehow never find their way to the magazine or the web site, recovering some of the information otherwise lost in the noise level...

Thursday, September 18, 2008

Semantic problem

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Day after day of extraordinary happenings in the financial world; one aspect of the commentary triggered a question in my mind. A lot of what the “investment banking” sector - that has come to grief in spectacular fashion – does is, in effect, gambling. Not only is it betting, but as far as my very limited understanding goes, some of it is betting on the outcome of other bets. The flashy name for this seems to be “financial instruments”.
If you’re going to play this sort of game, you might think it a good idea to have some grasp of the odds of the outcomes, and indeed, there is talk of “risk assessment”. They are obviously not very good at it, but they speak of it. Listening to this stuff on the news channels it has begun to dawn on me that there is a disconnect in the language going on here.
If I (and I’d guess the same goes for you, reading this column, probably with an engineering or science training and mindset) hear the term “risk” I think of actual numbers; percentages, statistical parameters based on real-world measurements or collected data, that enable a mathematical analysis of probabilities to be made.
It seems, from what I’m reading, that that is not what these financial types mean by “risk” at all. They mean something like; an instinct for whether the organisation, or even the man, who is offering the particular financial product, is to be trusted, or has ever let them down before, or has a good name in the banking community (is there any such thing any more?) And similar nebulous concepts that they somehow translate into measures of security. Although they are using the term “risk” there’s no mathematical rigour implied by it.
The obvious conclusion is that we need more engineers and technologists running things. Of course, when we left school and college, we all went off and did the interesting stuff and left running the banks and the countries to those other guys. You know the ones…..

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