Why technology failed to prevent the Wall Street meltdown

Merrill Lynch and Lehman Brothers didn’t need business intelligence software to tell them the U.S. economy was going into the toilet, but I’m sure they had some.

They had probably made all the other kinds of technology investments firms of that size are supposed to make. Surely in an industry in which information had to be timely and accurate, they would have purchased the best enterprise applications, virtualized their IT infrastructure and set up a service-oriented architecture. These are (or were) the blue-chip enterprises that IBM, Oracle, HP and others all salivate over. Now those technology assets look like the gold-plated sidings of a ship belonging to an army defeated in an ancient war. Senior management at these Wall Street firms, including AIG, would probably have been willing to trade in the idea of a return on their technology investments for mere survival.

Analysts from Gartner and Forrester were sanguine about the impact Lehman Brother’s bankruptcy and Merrill Lynch’s acquisition by Bank of America will have on the IT vendor community. They say that the financial enterprises knew there the subprime lending crisis was going to hurt them and they have budgeted accordingly. That’s good news for the OEMs (and for the research firms, whose work is sponsored by them), but it avoids the uncomfortable truth that all dreams we hold about how technology can help achieve business goals have been dashed once more. Financial firms may have different kinds of goals, but none of them want to find themselves scrambling for capital or shutting down completely, and when customers can’t afford to pay their mortgages, even the shiniest servers aren’t going to save them.

You could argue that this is asking too much of IT. But how can we operate as an industry under the myth that technology is critical to business success if it can do nothing to prevent its failure? Lehman Brothers was reportedly continuing to shell out on IT even as its fortunes worsened, with filings showing expenditures of US$309 million on technology in the last quarter and total IT costs of US$1.145 billion. Unless the CIO, Hari Gopalkrisnan, was completely cut off from the inner workings of the company (or if he had been living under a rock for the last year and did not foresee the coming housing “correction”) it must have felt as though they were preparing to start on construction for a new skyscraper in Atlantis.

Everyone knows there are cyclical downturns in most industries, and even periods of steep setbacks, but the IT industry likes to pretend they don’t exist. Growth, in whatever form, is the only goal, and we focus on how to scale up, never stopping to imagine how we might have to scale down. If we did, perhaps someone really smart might offer some kind of technology to better manage businesses through economic contractions without suffering the most devastating effects. Such valuable IT would not necessarily be seen as a revenue engine but an insurance policy. And as Lehman Brothers could no doubt tell you, you can never have enough insurance.

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