Wall Street lied to their computers

I found another article on the NY times that is in slight contrast to my last post. This article entitled, "How Wall Street lied to their computers" discusses a different opinion to that of the previous one entitled, "Risk Mismanagement". In this article, the writer states that the risk management models that were in place were actually functioning correctly and that they were giving top executives strong warning signs about the mortgage-backed loans, yet they still chose to be greedy and took on huge bets/risks even though they were advised against it. This is a big contrast to what the Risk Mismanagement article claimed that these risk models were faulty. I would also disagree with the Risk Mismanagement article as I showed in my previous post how Goldman Sachs top executives used their risk management models wisely to avoid the financial meltdown.

Wall Street executives supplied their risk models with over simplified data. This caused the risk models not to consider hard financial times and thus the warning signs were not as strong as it should have been with the correct data. The executives provided data to their risk models of the last few years when the market was reasonably stable, instead of providing them with up to date data so that they could show the proper results. Executives did this as they were required by regulators to monitor their risk positions and thus adjust their their bets or set aside more capital to cover the extra risk that is being taken on. By lying to their risk management models, these executives could bypass the regulators and their risk models and invest in the failing mortgage securities, even though all the warning signs were there not to invest.