More on Why Bank IT and Payment Systems Matter

Although more and more readers are coming around to our point of view on how much bank IT and payment systems issues need to be seen as a first-order issue to be addressed in considering a Grexit, we still encounter a considerable minority of readers and other commentators who find it upsetting to be told that information infrastructure, and even seemingly mundane issues like designing, printing, and distributing currency (as in refitting ATMs to handle it and the logistics of getting the cash securely to ATMs and restocking them) are not trivial issues.

I wonder if this resistance is a symptom of the fragmentation and specialization of the overwhelming majority of work. In the old primitive days of greater self-sufficiency, people would have to worry on a routine basis about how things could screw up and would need to plan: making sure you kept your tools in good repair, knowing how to store foods to get through the winter, knowing the time it took to get to the nearest town for supplies and other essentials (say medical care). By contrast, most Americans who have adequate incomes can shop for food daily if they want to.

The reason we are pressing on with this issue, even though the question of a Grexit is now in abeyance, is that the creaky state of bank IT, and the systemic risk it poses, is only going to get worse. We’ve been gratified to see a lot of readers generously provide a tremendous amount of detailed insider commentary. We plan to continue to focus on this issue and hope the professionals who can give us their war stories and insights remain engaged.

I find it puzzling to encounter what often looks like knee-jerk resistance when readers with deep expertise in bank information technology explain why the lack of documentation of virtually all coding, the large number of different languages used, and the interdependencies among systems means that changing currencies (really, running two currencies in parallel when before you had only one) is a daunting problem for a single bank, and becomes vastly more complicated when you look at issues across the banking/payment system. As reader JustAnObserver wrote:

I’m in the IT biz, h/w not s/w but still …, Louis & Clive (+ other commentators) have pretty much nailed the difficulties of modifying, testing, and then deploying new code into an exiting, running, mission-critical system stuffed fully of dusty deck legacy. They are legion even before you get to what might be called the “user interface” aspects – in this case POSs, ATMs, PIN delivery, check clearing etc. Its not called spaghetti code for nothing (*)

However what has struck me is that there’s an assumption here that seems to be going without question: All the s/w that has to be changed is still available in source code form – be it COBOL, PL/1, Assembler, Fortran or whatever – and can be recompiled. Maybe in amongst the decades old stuff are binary blobs of machine code whose source has long since been lost and whose interface is barely defined/understood, if at all.

On a different note. All this long thread on the IT aspects of Grexit does in my mind is to, once again, raise the question I asked myself a long time ago and to which I have never had any kind of satisfactory answer. Why are those on the left (however strongly/weakly you may define that term) so utterly and pig-headedly resistant to the idea that if you are going to (persuade people to allow you to) change things then you might at least *try* to make the changes work. Here. In the Real. With all its complexities, interconnections, uncertainties.

What exactly is wrong with the left showing a little competence? For a change.

In Louis Proyect’s latest post on the difficulties of re-introducing the drachma, another reader explained why changes that seemed like they ought to be simple in a big bank IT environment were typically anything but. And notice how he is talking about changing foreign exchange systems, precisely the same type that would need to be changed to incorporate a new drachma. From Unknown Gnome:

I’ve been reading this series with interest and thought I could offer some insights on the difficulties of a transition to a new Greek Drachma based on my background and experience.

By way of my background – I have worked for over 10 years in the IT department supporting the foreign exchange front office arm of a bulge bracket bank known for the size of its foreign exchange business.
I joined initially as a programmer, started working as team lead and am now employed by the same bank as a delivery manager of a largely outsourced and offshored IT department.

On the basis of working for my employer I probably have a fairly good insight in to the difficulties of making IT changes to introduce a new currency to a large bank and most banks of our size are likely to face the similar of problems.

So how difficult is it?

I can probably best illustrate this on the basis of a recent change request.

Our foreign exchange sales and trading arm wanted to increase the precision of certain foreign exchange instruments we were quoting – we were supposed to make a global change so that an instrument – one currency quoted vs. another – could be offered to clients at a higher precision.

The request that came in was to increase the precision by one digit – so we could quote rates with 5 digits of type 1.23456 as opposed to 1.2345 we offered previously – this was requested for 200 different currency pairs.

How difficult could this be? We decided to start by changing the precision of just one currency pair in a test environment.

The problem was simplified by the fact that the change wasn’t going to affect the operations/back office components in a big way. After all cash flows and not rates were settled and no changes were going to be required to the risk management or middle office components.

Nevertheless introducing and successfully testing 1 digit precision change for a single currency pair in to a software test environment took over 4 months and changes to 50 separate software applications.

“Why was this so hard anyway?” – a senior MD wanted to know – “couldn’t we IT people keep the instrument definitions in a single central place?”

All I could offer were excuses that sounded lame – even to me – the applications hadn’t been developed with this in mind.

Not surprising really given that our trade capture and price distribution tools – written in Java are 5-10 years old. The risk management and middle office applications are 15-20 years old and are written in C++. The settlement systems are 30+ years old are written in Cobol and run on a mainframe.
Each component had its own and often undocumented source of instrument data.

What does this tell us about the effort required to introduce a new Greek Drachma?

This would require a lot more effort for a number of reasons.

Firstly it isn’t possible to simply revert the original ISO currency code (GDR).

An example will illustrate this – let’s assume a bank had issued a 30 year loan in the original Drachma to a financially sound commercial counterparty in 1998 to mature in 2028. This loan would have been converted at the agreed fixed rate to the Euro in 1999.

Both counterparties should expect to settle in 2028 in Euros at the rate fixed in 1999 – not a new rate for the new Drachma and any attempt to re-activate the original instrument with a different exchange rate would cause problems both in the banks spot and interest rate risk management applications and department as well as the operations department at settlement date.

Lots of applications would be affected.

The front office applications responsible for price distribution and trade capture would need to recognize and price the new Drachma instrument vs other currencies – even in a managed exchange rate environment with the rate fixed by the new central bank of Greece.

Risk management, finance and the global ledger would need to have their risk decomposition and book assignment rules upgraded to ensure the correct aggregate books contained the correct amounts.
Several sources of instrument static data would need to be upgraded.

The settlement systems would need to be upgraded to allow them to confirm trades and settle transactions in the new Drachma.

Central pieces of essential inter-bank plumbing run among others by Swift and Reuters would need to be upgraded as well. It should be noted that these pieces are likely to be required even for the lesser goal of enabling financial transactions between Greek banks within Greece in the new Drachma.

It’s worth remembering here that when the Euro was introduced commercial banks and other financial intermediaries were given multiple years to do the work and a strong commercial incentive of the common market in a single currency.

A potential disorderly exit from the Euro by Greece would leave many banks with little time to implement the changes and – short of coercion by the EU – little commercial incentive given Greece’s much smaller economy.

Without the global IT plumbing modern cross border financial transactions in the new Drachma would be all but impossible for Greece.

In case of a Grexit their best bet in the interest of keeping any form of financial exchange going would probably be to unofficially adopt the Euro or US Dollar ad interim – the way Ecuador did in 2000.

Yves here. The wee problem with “unofficially adopting” the Euro or dollar is it is completely at odds with the objectives for reintroducing the drachma: first, for Greece to be able to attain monetary sovereignity, and related to that, to have the drachma become accepted for international/cross border transactions so that Greek exporters would gain the benefits of having a cheaper currency. You can only do so much having people use foreign currencies in physical form in Greece and having locals all run de facto foreign exchange businesses by making their own conversions to drachma in the course of conducting business. Our expert Clive explained at some length, why converting electronic point of sale systems is not trivial and why that matters. For instance, credit cards are widely used by tourists on vacation, and for good reason:

To those who might suggest that Greece could revert to a cash only society for a time until the card payments system was modified it is worth noting that for some industries – notably lodging, rail travel, car hire (all of which are important sectors in Greece because they are part of the tourist industry) – have a very high percentage of settlement via card payments. This is because customers do not carry sufficient cash to cover these larger bills or even, for vacations especially, do not actually have the cash available and need to tap a line of credit. And for car rental, for example, some sectors have evolved to become entirely dependent on card payments. It is very difficult to hire a car without a card being used to pre-authorise the likely bill and to allow the car rental company to get an irrevocable deposit should you damage the car. If you don’t have a card to use, you need a huge cash deposit, often $1000+.

And cash societies are very susceptible to regressing to a black market economy with the predicable implications for a government’s ability to secure tax receipts.

A remark by Joe Firestone in a recent post seemed to encapsulate the core bone of contention, and Clive graciously responded via e-mail. First, from Firestone:

One thing I do know is that “solutions” to the IT problem of Grexit that take up to three years to implement are not acceptable solutions to the IT problem, since Greece may have to Grexit in the short run without very much of a grace period.”

From Clive:

It all became clear to me that, in relation to a Grexit and IT, Joe has no intention at all of engaging with the facts let alone any theory. He only has a hammer (that the Greek financial systems’ IT must be “fixed” in a few weeks or at most a few months to handle a Grexit) so every time he peruses the matter he goes looking for things that he hopes are nails (“solutions” that can be implemented in a few weeks or months).

If anyone like me dares to suggest that there are no nails, or anyway not the sorts of nails he wants to be provided, ‎I get accused of not trying hard enough to find them. He himself claims that he might have found objects which could be nails but he doesn’t know enough about nails to identify them correctly. Joe then invites (or professes to invite) opinions on whether what he has found are indeed nails. But again, if he gets back contratrian voices saying, no, those aren’t nails, they’re patent medicine in fancy bottles, we get told that we just don’t recognise a good nail when we have it put in front of our noses.

Unfortunately this type of thinking is not uncommon. On a pretty ‎weekly basis I get someone coming to me to tell me that s\he has got this project they want doing, it is all terribly simple, they are expecting that I’ll have it completed in a month or so and it will cost about 5 pence. I send them away telling them to come back when they’ve gotten real. But if they persist, then the problem is self-resolving. Either they’ll ask around some more and get the same asnwer I’ve already given. Or else they’ll find someone who will try to do whatever impossible thing is being demanded – and then it is apparent withing a month or so at the most what is reality and what is delusion.

Unfortunately in a blog and comments it’s not so easily settled. Joe is completely convinced that with all this sh*t piled up, there must be a pony here somewhere. ‎He then invites (demands?), not unlike Hillary and BLM, that others come on in and get shovelling. If you try to tell him it’s all nothing but a pile of crap, you just get given a bigger shovel.

One reason we’ve kept on about this issue is that the stakes for Greece are much higher than just wasting time and money on the IT equivalent of quack cures. Greece is not self-sufficient in food, energy, or pharmaceuticals. Greece also has a tourism sector that is 18% of GDP. Greece got a mild taste of what impaired access to a payments system amounted to in its two-week bank holiday. Tourist bookings did indeed collapse, food shortages were starting to occur, importers struggled mightily to survive and many continued to suffer significant damage even after the banks began to get liquidity. The fact that the Greeks themselves reject the idea of a Grexit despite the horrific costs of continued austerity suggests they have a better grasp of the cost and benefits than well-intended foreigners do.

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  1. Jose

    The European Commission had a detailed plan for Grexit ready by July and the Germans also made a proposal for a Grexit – with debt relief included – that Mr. Tsipras didn’t take.

    It’s ironic that the creditors offered an escape route from the euro prison but the prisoners preferred continued austerity and suffering inside the jail.

    Anyway this shows that a Grexit is indeed possible – the IT problems notwithstanding.

    It would be interesting to have the EC (and German) experts who designed the Grexit scenario join this discussion on the IT issues involved. Unfortunately it likely won’t happen – civil servants are not allowed to discuss such issues extra muros.

    Here is Mr. Juncker on Grexit (July 7):

    “The commission is prepared for everything,” European Commission President Jean-Claude Juncker said after a meeting of euro-area leaders in Brussels. “We have a Grexit scenario, prepared in detail.”

    1. alex morfesis

      ah yes…a press release sent out with the words ” detailed plan”…just like the on time and on budget airport in berlin…detailed plans…nice words…they ring softly into the ears of the uninitiated…mesmerizing even…
      a dope dealer has a plan for a junkie who wants to go to rehab…as soon as they stop buying, they get another junkie to call her and cry that “they are sick” on the cell phone…the person calling being very persistent and persuasive…and then she walks the streets one more time…and remembers she couldn’t really without being high…and if that doesn’t work…the sick person asks her to go get it for them…and if the “former” junkie isn’t rattled by that purchase process, the person who called then insists the person watch crying it is no fun getting high alone and then complains they feel bad the “former” junkie wont join them 1 more time for old times sake…4 out of 5 times the tactic works and the dealer has his 150 grand a year meal ticket back on “foot patrol”…

      wolfie in the wheelchair and his kyffhauser krew are hungry for that same power…if they had intended to “help” greece out of the eurozone with real tools instead of starvation…would they not have announced it fully with detailed plans…???

      prepared in detail…such a nice sounding set of words, spoken with conviction…it takes practice in front of a green screen to pull that off properly…but the price of video production equipment is low enough that the cost of training someone at the bernaze institute of audio visual confounding is quite reasonable these days…

      1. JeffC

        Wild guess: a detailed plan to keep the currency-transition disaster that would then be unfolding in Greece from bringing down “important” EU institutions like megabanks. So not a transition plan for Greece at all, but only a crisis-avoidance plan for everyone else. Again, this is speculation.

  2. Moneta

    Although I agree that the IT implications are a nightmare, I do not think it’s IT that will ultimately determine the Grexit. IMO, it’s like saying that the real estate bubble could not burst because MERS was not ready for it.

    However, the IT situation sure gives us an idea of how many more shocks we could potentially have to bear over the next decade or 2…. The perma-optimists, thinking technology will get us out of this mess, are in for a few surprises.

    1. Synoia

      real estate bubble could not burst because MERS was not ready for it

      Really! Real estate conveyancing can exist without MERS.

      Banking cannot exist without its software and systems. Software and systems ARE banking.

      1. Moneta

        Actually proper conveyancing suffered just like proper banking would suffer.

        Grexit can still happen without proper systems, painfully but still possible.

        1. Synoia

          Yes, If you are willing to run a barter economy, and not have any imports.

          Such as fuel, food and medicine.

          That might explain why the Greek people have decided to keep the Euro. Thay’d have to live with your proposed consequences.

          Here’s my offer to you: Go forth and show the way.

          1. Deloss Brown

            “It’s possible, says Nietzsche, to jump off a rooftop. Jump!–and everything is solved.” Chekhov, THE CHERRY ORCHARD

    1. Synoia

      Computers are tools. What was not anticipated was legacy code.

      The first programs I wrote, in 1971, ARE STILL IN USE.

      IBM’s zOS operating system contains much code written in the1960s and 1970s.

      1. susan the other

        We need a Rosetta Stone. Because language, a pretty straight-forward means of communication, cannot be translated without a clue. Language has evolved very slowly and language endures millenia beyond its living use. The point being that computer language, code, is as basic as language – is based on syntax (language and logic) – and pieces of it will endure forever if it is sufficiently logical. And it is. So why not create a digital mechanism that umbrellas all computer code and consolidates it into more idiomatic forms – but keeps a detailed record of the evolution. And reduces it to a single word, a single digit somewhere in the ether. I get the feeling that computers are currently hopelessly lost in translation.

        1. Alejandro

          Rosetta Stone is a very interesting analogy…not just the translation but the transliteration. It elicits the question-how much of the coding is a projection of the coder? Can’t help but think about the economic scale that defines extreme left as communism and extreme right as neo-liberalism…and how the strong anti-communist semiotics of recent generations might have transliterated and metastasized into the pervasive language of neo-liberalism today…and conclude with the J.K. Galbraith quote you recently shared-“Under capitalism, man exploits man. Under communism, it’s just the opposite.”

        2. JTMcPhee

          Law school joke: Guy is preparing for his exam in Commercial Paper. He’s read the casebooks, abstracted all the cases, reviewed the UCC, gone over his Gilbert’s and sticky-noted and highlighted everything, sat through days and nights with his study group, and gone through the long process of linking memory chunks to outlines, with mnemonics to help array it all for extraction and regurgitation in the exam. He buzzes on caffeine, refines and reduces until all that knowledge, sub-routined into nested acronyms, is concentrated into a single seven-letter mnemonic. Sleeps three hours, off to the exam room, professor looking down over his sniffy half-glasses as he hands out the bluebooks. Confident future Supreme Court clerk takes his back to his seat, clicks his ballpoint to write down the Key to All Commercial Paper Knowledge, and CAN’T REMEMBER THE DAMN MNEMONIC…

        3. OpenThePodBayDoorsHAL

          Rosetta Stone of money is the distributed consensus ledger, passing debits and credits from one ledger to another is like the Pony Express passing physical letters compared to the internet and email. Don’t be misled by the hyperventilating around Bitcoin, the real deal (not Bitcoin) is leaving the tech labs: a neutral, open ledger where any form of value can be represented, accounted, and exchanged. Zero chance for error, zero chance for manipulation, zero chance for fraud. It’s just a protocol: when was the last time you sent an email (with the correct address) and it didn’t arrive? This is going to take everyone by surprise, and we’ll be wondering why it took so long.

    2. Oregoncharles

      Frank Herbert: the Butlerian Jihad. I believe there’s a book by that name, written by his son.

  3. Dan Lynch

    I am what may be called a part time programmer (writing software is one of the many hats I wear) and well appreciate how tough it is to modify code to do something it was never designed to do.

    That said, the reason Yves’ handwringing over IT problems comes across so poorly is that it is presented as an excuse for inaction. “Hey, Greece can’t leave the Euro because IT problems so let’s all resign ourselves to being docile serfs forever and ever.”

    Nonsense. There will be serious problems no matter which way the EU countries go. That is never an excuse for inaction.

    Eventually the EU will fail. Eventually Greece and other EU countries will have to leave the Euro. I say get on with it.

    1. Jim

      Yves description of the difficulty of changing computer systems makes it appear to be the case that modern computerized societies are highly fragile. If she is correct their longterm prospects seem pretty uncertain.

      1. Brooklin Bridge

        You’re right. Computerized societies are fragile. Computers in the most general sense are far more than simply tools. They are reflections of society and the intractable complexities societies get themselves into. It’s as if there is almost a one to one relationship with computers and computer networks and with population levels and the increasingly impossible and irreversible demands they put on each other and their environments.

      2. Carlos

        That made me smile, it seems like the entire worlds banking system is layer upon layer of twisted wiring that was put together over a period of fifty years. The bloke who did the original wiring left, the drawings haven’t been updated and the manual is written in Welsh.

        I’m on tenterhooks now waiting for the entire financial system to come crashing down when a mouse eats through one of the wires.

        1. Lambert Strether

          That’s not entirely a fair picture, because a lot of really excellent engineering was done back in the day. That’s why the systems have stood the test of time, after all. However, yes, because of the usual quarterly focus, there’s plenty of bubblegum and baling wire about.

          Reminds me of the steam heat in my house. Dan Holahan, whose life’s mission is to rebuild those systems, has written of “the dead guys” who designed and sized and built those systems 50 years ago. To make a residential steam system work, you’ve got to understand their constraints, get into their heads, and understand the problems they were solving. No doubt, we will need the occasional seance with “the dead guys” for payment systems, too…

    2. Synoia

      You are correct.

      However funding such a conversion would probably cause a civil war in Greece, and the trioka to pull the plug immediately due to the seemingly “display of bad faith.”

      And from where would Greece find the money to fund the transition? The ECB? Germany?

      And what happens if the large IT project fails. (Many do), or as expected fails to meet the imposed schedule?

      What we are experiencing here is this classic management/engineering conundrum: The are three variables, cheap, fast and good. You can only optimize two of these at the expense of the third. (Management always chooses cheap, and enjoys the results by moving on quickly – IBGYBG – before the truth hits the fan).

      We know the system has to be Good, or the Greek economy fails. We know the implementation has to be fast because at best we have a fixed time-frame. Consequently it will be expensive, and this does not even address the question of how to find the skills, fluent in Greek, to complete the project.

      Bottom Line: Where is the funding? The ECB? Germany?

    3. Lambert Strether

      “That said, the reason Yves’ handwringing over IT problems comes across so poorly is that it is presented as an excuse for inaction”

      I see that “assume a can opener” is not an attitude held only by academic economists.

      Remind me to do my best to prevent people with this attitude from getting into any position of power where they might be assumed to have a duty of care for others. Obviously, they don’t. One reason Syriza really hurts the left, although, to be fair, it’s probably best to get all this out in the open now before things get really serious.

      1. JTMcPhee

        Hmmm… How do “duties of care” come to exist, and who enforces them and provides correction and remedies for breach?

  4. Brooklin Bridge

    The focus on the technical difficulties of introducing a currency in Greece brings up the question of what SYRIZA and Tsipras and Varoufakis in particular, could have effectively done in the very early stages even if they had had the presence of mind to keep Grexit conspicuously on the table, and possibly to have initiated capital controls as negotiating strategies as well as to give themselves some breathing room back in February. Even on NC, back then, the full scope of a currency conversion in a long developing technical quagmire wasn’t as clear as it has become recently.

    Of course it wouldn’t have been necessary to bring up the subject of currency explicitly, so as a strategy for negotiations, leaving the possibility of a Grexit open, even conducting a feasibility study of introducing a new Drachma, would perhaps have been effective if only to improve the outcomes of negotiations (that would still have been seen as thin gruel by many on the left). But it would have quickly become clear to Varoufakis, if no one else in power, that their options in that direction were in reality severely limited not only by the standard difficulties in such a complex project even assuming modern somewhat more flexible and modular code and hardware, but particularly with a morass of outdated crusty binaries that are holding the banking industry hostage because they WORK as long as you don’t sneeze anywhere near them.

    It has become clear that neither Tsipras nor Varoufakis played their parts well in spite of difficulties they may or may not have been fully aware of. That they have not only squandered the confidence given to them by their people but put the Left in Greece and Europe in general back by a decade became difficult to argue, all along really, but dramatically so after the charade of the public vote where NO = YES led to compromises that were worse by good measure than what had been on the table only weeks before (and which were themselves already a complete sell out to austerity in its most ugly and hideous forms).

    But the unfolding tragedy seems to have been baked in. What could have been done to achieve an enlightened outcome against such violent and determined forces still remains more and not less of a mystery due in large part to the banking industry’s historically conservative hyper risk averse relation to IT. If a Grexit from the Euro (not from the EU) was indeed the critical backdrop for an actual default while remaining in the Eurozone, only under far more advantageous and realistic economic conditions, It seems as if one would have to go back to 2010 – 2012 for anything to be realistically workable and even then would it have been possible to convince the public to go along with such frightening potential changes?


    1. Brooklin Bridge

      I also suspect the banking industry’s aversion to software change when something is already working is frequently justified. The assumption seems safe as the problem is hardly unique to banking. Software is touted as being easy to change but that is partly it’s weakness; it’s too easy and for complex systems the results are impossible to fully assess with practical resources (the famously meticulous code process of NASA development is simply not available to most industries).

      1. Synoia

        the famously meticulous code process of NASA development is simply not available to most industries

        The NASA system is both not affordable, and only effective for lightly connected systems in a static environment.

        Banking systems are highly interconnected in a dynamic environment, and funded at least cost.

        1. Brooklin Bridge

          Good clarification!. I should have put, “not available or appropriate”, but that still isn’t as clear as your distinction.

  5. JTMcPhee

    There was an old TV series on BBC, as I recall — James Burke’s “Connections.” The wiki explanation of its content:

    Connections explores an “Alternative View of Change” (the subtitle of the series) that rejects the conventional linear and teleological view of historical progress. Burke contends that one cannot consider the development of any particular piece of the modern world in isolation. Rather, the entire gestalt of the modern world is the result of a web of interconnected events, each one consisting of a person or group acting for reasons of their own motivations (e.g., profit, curiosity, religious) with no concept of the final, modern result to which the actions of either they or their contemporaries would lead. The interplay of the results of these isolated events is what drives history and innovation, and is also the main focus of the series and its sequels.

    To demonstrate this view, Burke begins each episode with a particular event or innovation in the past (usually ancient or medieval times) and traces the path from that event through a series of seemingly unrelated connections to a fundamental and essential aspect of the modern world. For example, the episode “The Long Chain” traces the invention of plastics from the development of the fluyt, a type of Dutch cargo ship.

    Burke also explores three corollaries to his initial thesis. The first is that, if history is driven by individuals who act only on what they know at the time, and not because of any idea as to where their actions will eventually lead, then predicting the future course of technological progress is merely conjecture. Therefore, if we are astonished by the connections Burke is able to weave among past events, then we will be equally surprised to what the events of today eventually will lead, especially events of which we were not even aware at the time.

    The second and third corollaries are explored most in the introductory and concluding episodes, and they represent the downside of an interconnected history. If history progresses because of the synergistic interaction of past events and innovations, then as history does progress, the number of these events and innovations increases. This increase in possible connections causes the process of innovation to not only continue, but also to accelerate. Burke poses the question of what happens when this rate of innovation, or more importantly ‘change’ itself, becomes too much for the average person to handle, and what this means for individual power, liberty, and privacy.

    Lastly, if the entire modern world is built from these interconnected innovations, all increasingly maintained and improved by specialists who required years of training to gain their expertise, what chance does the average citizen without this extensive training have in making an informed decision on practical technological issues, such as the building of nuclear power plants or the funding of controversial projects such as stem cell research? Furthermore, if the modern world is increasingly interconnected, what happens when one of those nodes collapses? Does the entire system follow suit?

    Kind of the quantum, compendious definition of “vulnerability,” which “we” who talk so glibly about “us” and our “nations” and “money” and stuff on the way to “policy” inter-erections are only now, like Luke Skywalker learning the power of the Dark Side from the Emperor “at the end” Interconnection without interdependence and mutuality and self-repair, in fact its opposite, of which the shorthand, “neoliberalism,” is just one expression.

    Vulnerable to geeks who hack not only our networks and data but play with nanodevices and mess with genetic material and resurrect the 1917 influenza virus and “improve smart weapons to include autonomous killing of humans ‘n’ stuff.” Vulnerable to people with guns and knives and Berserkr or run-amok impulses or police-state impunity. To little sh_ts with MIT advance degrees that exploit weaknesses in “the money system” to derivatize and monetize and all the rest of the Ownership Society Political Economy. To corporate zombies that get to kill “us” with externalities while renting “us” our “own” homes and stripping the last of the Commons and facilitating “our” burning and blasting of the planet, to the whole incredible thing that is the nuclear weapons “program” that spans the globe now, e.g., and also threatens extinction due to those most persistent principles of the universe, accident and error…

    Pick your own favorite vulnerability, from insecurity in food, water, breathable air, the whiteboards and flip charts are freshly erased and flipped for whatever anyone wants to add… Including any observations on homeostatic, negative-feedback structures and impulses that might counter the rigidities of Murphy’s Law and the Second Law of Thermodynamics — there must be some, even in a situation as horrific and dire as the one afflicting the ordinary people in the geographic areas denominated as “Greece,” and “Iraq,” and “Notagainistan,” and “Syria,” and “Sub-Saharan Africa,” and Gaza, and Mississippi and Missouri…

    1. Vatch

      Burke contends that one cannot consider the development of any particular piece of the modern world in isolation. Rather, the entire gestalt of the modern world is the result of a web of interconnected events, each one consisting of a person or group acting for reasons of their own motivations (e.g., profit, curiosity, religious) with no concept of the final, modern result to which the actions of either they or their contemporaries would lead. The interplay of the results of these isolated events is what drives history and innovation, and is also the main focus of the series and its sequels.

      Okay, I’m going to briefly veer off topic. The paragraph above is a good explanation of a reason why innovative entrepreneurs and inventors do not deserve to become fabulously wealthy. Yes, they deserve to be well compensated, but their innovations depend so heavily on the work of other people, it is clear that most of the rewards really belong to those other people.

      If Bill Gates and Paul Allen of Microsoft hadn’t been around in 1980/1981, someone else would have created the operating system for the IBM PC. And the operating system that they created was largely the work of others, such as Tim Patterson and Gary Kildall.

      1. Carlos

        I find it so absurd how IP laws are touted as so essential to incentivise technological progress. Microsoft are a prime example how IP laws and the profit incentive have done so much to impede technological progress.

        I wonder how high and fast could have flown without these trolls holding us back. Windows 10… the twisted inbred child of a bogus monopoly.

      2. Lambert Strether

        Yep, they are collected rent based on serendipity. The history of technology is full of examples of “the test of independent invention.” I like the Burke paragraph a lot.

  6. oho

    ignorant comment of the day—

    wouldn’t it be much easier if Greece just adopted something like the Polish Zloty (sp?) or turkish lira as an intermediate term measure?

    Pegging to the stronger USD makes no sense, but a weak but stable currency of an economy with similar characteristics?

    1. Synoia

      Only if they can also implement a copy of the Polish Banking system (presumably written with Polish comments), and adopt Polish banking laws.

      Obtaining a copy of the software and systems from the Polish banking system would probably involve a large payment to the Poles for their technology.

      And from where would the large payment originate?

      (I suggested the Greeks contact the Check Republic, pun intended).

    2. Synoia

      Second ignorant comment of the day. Sigh.

      Greece needs an INDEPENDENT or SOVEREIGN currency, and banking system which can supports the exchange rate between it an the Euro (and all other currencies).

      The currency is not the issue. The issue is the banking systems needed to support a SOVEREIGN currency, immediately. Where immediately is defined as less than 3 months, and more than one week.

      Before writing comment, please understand problem.

    3. Oregoncharles

      An Irish writer suggested the renminbi – now an increasingly weak currency. Offered a plausible argument why China might help with that – for strategic advantage.

      Not sure how important it is is, but Greek is written in a different script from, say, Polish, or Chinese for that matter. Yet another IT complication.

  7. dw

    i think its not what technology is in use (be it legacy or the latest greatest fad tech) . its that any business application is much complex than many think it is, because it must deal with humans and the different situations that occur. and do. then there are those pesky laws, regulations, and court orders. that all end up on top of what ever particular rules that a business wants to use. an example might be to only send bills from the first to the 28th. so that you can avoid having to deal with months that dont have more that dont always have more than 28 days. thats a simple one. there are some that just are enormously complex and will never be simple. no matter what technology you used

  8. susan the other

    This technological difficulty also makes me wonder about Germany’s position. It is probable (?) that Germany doesn’t have any better IT expertise than Greece. Maybe that understanding gave Schaeuble the edge on Tsipras. We are all in this together.

    1. Synoia

      All the IT expertise in the world probably cannot help one if the system is commented and documented in Greek, and one is only fluent in German.

    2. Brooklin Bridge

      Unlike Greece, Germany has money and time on it’s side. I doubt Schäuble would be aware of the problem to such an extent that he would use it as a weapon against Tsipras. Anyway, why bother? Tsipras was already doing his utmost to make Schäuble’s villainy not only possible, but downright easy.

  9. Carlos

    Well I’m glad we are being reminded once again there are lots of really complex IT challenges and it’s vitally important to resolve these issues, before even contemplating running your own sovereign currency.

    My enduring point is that Greece could have and should have planned contingency for a Grexit several years ago giving all the IT wunderkind an opportunity to identify and resolve the oft mentioned issues. It has been mindbooglingly foolish and irresponsible not to prepare for this worst case scenario. The Greek people have been relentlessly shafted with no recourse other than to bend over and smile, how much more can they take before they think maybe we should have planned an exit strategy? Based on previous evidence I’m guessing they can take quite a bit more punishment.

    If Greeks ever have any desire to be in control of their own destiny they will just have to figure out what needs to be done, carefully plan and be prepared to execute accordingly. The ECB has contingency plans for a Grexit, the Greeks have every right to develop a contingency for circumstances beyond their control. Who can determine what lunatic edicts may come from the Troika in future, they may be even more damaging than the pain they have already inflicted on the Greek people.

    It would be pig headed to relentlessly insist the only option is to remain in the Euro and hope for the best (if only Greece had better negotiators with real financial system experience, everything would have worked out just Jim Dandy eh!)

    1. Moneta

      How can you negotiate in good faith while publicising the preparation for a Grexit?

      Some currency designs have popped up so it would seem something has been going on.

      In a few years/decades we’ll be privy to what really went on.

  10. Oregoncharles

    OK, I believe you, not that I have any way of judging for myself. But again, this whole issue makes my hair stand on end (if I had any), because it isn’t really about Grexit, is it? It’s about code-as-law on a whole new level. It’s about what happens when an overly rigid (“tightly coupled”?) system meets a crisis. It goes way, way beyond Greece in a hurry, and it may be the real reason the 2008 crash was so bad.

    Background: the MMT theorists like Firestone have strong reason for their insistence. MMT is much more of a policy prescription than a theory, and the Euro was specifically designed to rule it out. That was ultimately the purpose, and it’s what has Greece and the rest of Europe so deep in the hole. You’re telling them the problem can’t be solved without a mammoth crash. Mr. Proyect didn’t like my slight exaggeration of his point; but the whole gist of this is that you certainly can’t make major changes in a hurry, and you may not be able to at all, at least on an acceptable basis.

    And it applies MUCH more widely than just Greece. Among other things, it means the whole financial system is working up to a technical crash, and not just finance, either. That’s why I brought up the Butlerian jihad. Herbert was onto something.

    A corollary of this point that applies here on NC: people who propose ways of cutting the Gordian knot should be taken more seriously. It makes sense to demand technical understanding from them, but we seem to be at a point where Firestone is right: there BETTER be a donkey in there, or we’re all in deep you-know-what.

    Personally, I’d really like people like Clive or Proyect to start telling us what a shovel looks like, because they’re telling us we’re going to need one really bad – and personally, I haven’t a clue. They’ve helped make a world we all have to live in, one that seems based entirely on short-term thinking. No wonder NC has so much to tell us.

    1. Lambert Strether

      So because A thinks there just has to be a pony, A gets to hand the shovel to B and tell him to start digging? When B is an expert not only in shovels, but in ponies, and in giant piles of manure?*

      Forgive my skepticism about this task assignment. What NC has discovered — and when you think about it, this should really have come as no surprise to anyone except, perhaps, for academic economists, juvenile adventurists, and wistful thinkers generally — is that finance capital has a concrete material basis that is hard to shift. For now, I’m happy to have nailed down that fact. “You gotta know the territory,” as the Music Man says.

      * To put this another way, when serious proposals are made, they will be taken seriously. (Actually, to be fair, several proposals were taken seriously in the sense that a great deal of time by a highly experienced team was invested in taking them to bits. One and all, they did not stand up to scrutiny.)

      UPDATE “taken more seriously.” It’s really hard to know, operationally, what this could mean. Apparently, NC needs to do more than bring together several experts with decades of experience, precisely on point to the current project. That sounds serious to me, so what do you mean? Play more nicely? Do more sucking up?

      1. MaroonBulldog

        Most of the money that exists in the modern worlds, exists as ephemeral strings of ones and zeroes stored in the memory of bank computers. And economists like Kenneth Rogoff want to change “most” to “all” in the preceding sentence. The concrete material basis of finance capital is hard to shift, and about to get even harder.

        1. Lambert Strether

          We think of data as ephmeral, but in fact it’s just as hard to shift as physical mass, and perhaps even harder since you can’t see it. Yes, the zeros and ones fail when a data center somewhere out in the boonies fails, but even then there are back-ups in some other boonies, and failovers.

      2. Oregoncharles

        I don’t think I’m in a position to give anyone an assignment. I can hope, though.

        I didn’t say there WAS a solution; only that there BETTER be; two very different things. If there isn’t, we’re looking, at best, at an ongoing source of grinding social and economic friction; at worst, at a civilization breaker right out of the Archdruid.

        I do see a good way of ameliorating the problem at least for finance: drastic devolution of the banks and shadow banks. In a complex ecology with many pathways, any given breakdown is less likely to affect the whole system. But this would be generally desirable – and so far, politically impossible.

        To Be Fair, we can’t expect people enmeshed in the system to come up with systemic solutions, if there are any. They’re too busy and lack perspective. Academics who research and write about these issues are a better bet – or the legendary hacker clique.

        Also TBF, I think you’re right about NC’s role. Raising the issue and critiquing proposals is doing a lot. We can’t expect a Manhattan Project from a handful of people. Might be a good idea, though. Not sure why I’m the only one this alarmed, but I see it as potentially desperate.

        1. Lambert Strether

          Paragraph 3: The Greeks are in no position to do this, however.

          Paragraph 4: “Academics who research and write about these issues are a better bet.” They are the very last people I would ask; see here. We had entirely many academics regarding the Greeks as experimental test subjects in the crisis. As for the legendary hackers, sure. It would be great if there were a “bank in a box” on github (although, since IT is deeply political, it would nice if people didn’t have to buy into any libertarian fantasies to use it).

          I’m not at all sure I accept your framing of “enmeshed.” You mean people who are technically expert and knowledgeable in how the systems actually work? That’s like saying you don’t want to talk about plumbing with plumbers who are busy and “enmeshed” in doing plumbing (when in fact it’s the plumbers who don’t have work who are likely not to be very good plumbers).

          Yes, of course it’s desperate. The payments system is a political weapon. I mean, why do you think the powers that be would love to do away with cash?

    2. Carlos

      The Euro was a neoliberal/reactionary project to counter post war social democratic/ progressive advances. Dressed up as cooperative internationalism to bamboozle the ignorant left, but designed to rip power away for sovereign states, putting even more power in the hands of transnational financial institutions.

      They are attempting to lock in good ole fashioned buccaneering, robber baron capitalism – forever. In that sense, they were never looking for improvements.

  11. Barry

    One of the things that became apparent to me while reading Unknown Gnome’s contribution is the cross-border nature of the coding problem. In addition to the technical complexity of re-working the system, there is a political element. Non-Greek countries can use the IT complexities and the connections between different banking and finance systems outside of Greece’s control to prevent Greece from succeeding.

    I also observe two common patterns in play here. The first is to assume that anyone who tells you how hard something will be is doing so to prevent action. This is not necessarily true. It is incumbent on people choosing a route to know the terrain they intend to traverse. If you positive-attitude the mountains off of your map, you will Donner Party your project (sorry for verbing the nouns). If you plan for the mountains, you might get across.

    (But, as has been pointed out, there is a time dimension to this notional project as well. To succeed, it not only has to solve the technical difficulties; it has to do so in time to avoid the complete collapse of a country and the starvation of a large portion of its population. So an effective plan will have to take that into account.)

    (And this is part of what happens in responsible effective planning: you look at the likely scope and cost of your plan, you calculate the labor involved to meet the deadline, you evaluate the risks. You consider alternatives. Then you make a go-no go decision. Responsibly.)

    Second, I see the management-by-expectations pattern that is so common around software. Software does so many amazing things; software engineers make software; therefore, we can just tell the software engineers what amazing thing we want, and the engineers will make it so. If the engineers doesn’t do it, they just weren’t good enough or had a bad attitude. Applying the same reasoning retrospectively: if the legacy code is complicated and tangled up with other legacy code, the engineers involved have failed us.

    There’s a comedy sketch that illustrates this pretty well:

  12. Oregoncharles

    Timely, from the Water Cooler:
    ““Technology issues at Bank of New York Mellon Corp., the largest fund custodian in the world by assets, are preventing the bank from pricing hundreds of mutual and exchange-traded funds, The Wall Street Journal reported late Wednesday. That means investors can’t value their holdings, making trading during one of the most volatile market weeks in a decade even more complicated” [Francis McKenna, Market Watch]. But this says BNY are crooks who skim from their clients. Are we 100% sure these are IT problems?”

  13. Synoia

    HSBC Failure Gives a whole new meaning to mission critical, and clearly highlights the issues involved in changing banking IT systems.

    HSBC system failure meant businesses unable to pay staff and bills
    Hundreds of millions have not been paid to up to 275,000 people today
    Victims take to social media to complain as their salaries are not paid in
    Bank first denied fault but three hours later admitted Bacs was down

    Those of you who believe a Grexit this is just a small exercise, read and weep.

  14. Carlos

    As I see it there are several key elements to the payment system: Cash, Cheques, retail POS (layered with direct debit and credit card systems) OTC account transfer, Internet payment and account transfer.

    In Greece the retail netting system (DIAS) is owned by a private entity, private banks manage ATM’s and Internet banking (maybe with some retail cash back). The BoG manages cheque clearance, gross settlement, the government securities system and oversees the other payment systems all within the legal framework established by the EU/ ECB.

    There is no doubt the IT complexity is immense and has increased exponentially recently with the advent of multi modal payment methods such as contactless, secure chips, phone systems and Internet banking.

    To universally roll over from the Euro to the Drachma over a single weekend would require significant time and resources. Several years with moderate resources. It would require a “Manhattan” project to do so in a few months. It has been pointed out the Greek people would suffer significantly if denied the Euro payment system in an interim period.

    The main point here is not the insurmmountability and complexity of the IT systems. It is the mobilisation and coordination of the actors responsible for change. The private banks, payment system vendors, international credit card companies and the ECB controlled central bank. The resistance to change is immense, in particular the rogue and aggressive actor with malign intent i.e. the ECB. The private financial institutions also have a serious conflict of interest to the proposal.

    The Greek financial institutions would need to be nationalised, any foreign payment system vendors (and their governments) need to be co-opted/ appeased and the ECB objections/ legal objections managed.

    This leaves Greece with the unsatisfactory option of a parallel currency, which could be implemented and phased in stages over a long period but would be sabotaged by the malicious actors.

    Greeks are screwed but not by IT complexity. It’s all ideological politics and powerful vested private interests against them.

    1. jrs

      I’ve heard predictions the Greece economy will recover in maybe 10 years from it’s current situation. Of course in 10 years of I.T. development they could also be capable of leaving the Euro, you’d think.

  15. Howard Beale IV

    Everyone is missing the fact that it isn’t that it can’t be done-it can.Even people who have retired can be coaxed with the right incentives and are willing to train the next generation. Shit, we got that problem domestically with our own megabank core banking systems, with some banks biting the bullet to do to new interplatform migrations, other doing intraplaform migrations with the same vendor, and others just keeping what they have and doing their own in-house training.

  16. Norb

    Discussing social policy is difficult when a common frame of reference is not established and maintained throughout the discussion. There is the macro and micro perspective. They are related, and influence each other, but must be kept distinct during an analysis.

    A micro change cannot occur if it fundamentally contradicts the macro policy or goal exercised by those holding Power. This dynamic is a political question. It is a question of Power. The fundamental relationship between a People and its Government must be clearly understood before any meaningful policy can occur.

    I am reminded of the late George Carlin’s bit on the American Dream. It is probably the most succinct and accurate observation of our current socio/political reality in America. In essence- In America, we don’t have freedom, we have Owners, they own everything and they have us by the balls!

    Why are problems not fixed in society today? Because the Owners of today don’t want to fix them.

    The Owners have mastered the art of co-option. They constantly perfect the tools of propaganda and manufactured consent. They work from the worldview of secrecy, loyalty to class, and rule through violence.
    This is what and economic and social system based on profit accumulation looks like.

    Logically, for those of us committed to fixing problems and making the world a better place to live for all, need to regain ownership of our lives.

    The macro view is the struggle for ownership. The micro view is how we obtain that goal.

  17. Deloss Brown

    Many of the financial IT systems I’ve seen have never seen an ARCHITECT. I worked for Tarp Bank and tried to document the bond trading system, and was taken off it after about three months of work. The initial screen was simple. It appeared to cover all bonds everywhere. But if you clicked on a link, suddenly you were in a different system for all of South America. The initial program had been added to and like Topsy, it just grew. Traders were mostly familiar with their own little corner of the program, but if you tried to change something–to make it system-compatible, for example–the traders, the profit center, could and did shoot it down. They didn’t want to change their method of input. So you were stuck with a Visual Basic program, an active Excel spreadsheet, communicating with a brand-new Java database. I apologize for the jargon. For those off you less nerdy, the analogy is of an Idaho potato farmer bartering with crops–in person–with a Ukrainian wheat farmer, only reality is worse.

    I understand Yves’ worries about how much trouble Greece will have. There is a possibility that if Greece has to build a system from scratch, it will be a tighter, more disciplined system. I hope they bring in Aristotle to be the architect. But it would take them at least a year, and what are they to do in the meantime? Inviting the Bank of Poland–or even Tarp Bank–to come in and establish branches all over Greece is not as bizarre as it sounds–and you’d have to accept a spurious 1/1 correlation between the zloty or whatever it is, and the drachma, and, then, of course, you’d ultimately have to transfer all the accounts to the new system when it’s built and argh argh argh–can’t breathe–

    Confusion to our enemies. With the best wills in the world, we have plenty for ourselves.

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