On 8/25/15 12:09 PM, Marv Gandall wrote: > > On Aug 24, 2015, at 1:47 PM, Louis Proyect <[email protected]> wrote: > >> Australian economist >> Billy Mitchell’s blithe assurance that the IT problems are minimal and >> my own insistence that it will be at least a three year effort to modify >> the systems. > > Whatever the truth of the matter, I wouldn’t describe Mitchell’s criticism of > your position as a “blithe assurance that the IT problems are minimal.” As > he says in concluding his rather detailed post: “I don’t want to suggest > there would be no problems. But I assess the costs of transition (doing the > work and fixing the glitches) would be dwarfed many times over by the costs > of on-going austerity.” > > http://bilbo.economicoutlook.net/blog/?p=31420 >
Mitchell really has no background in large-scale systems development, nor does Joe Firestone. Nearly everybody who has been commenting on my articles on Naked Capitalism agrees with me, especially those like this person who is a professional. Unknown Gnome August 25, 2015 at 4:10 pm 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. Reply ↓ _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
