The Atlantic writes about the software that “does the heavy lifting for the global economy,” which aren’t your favorite phone apps, but instead the “huge, creaky applications that run Walmart’s supply chain or United’s reservation system or a Toyota production line.”
But even more serious to consider are the software programs that run high-level financial systems, like Knight Capital, “which handled 11 percent of all U. S. stock trading this year” and “lost $440 million when its systems accidentally bought too much stock that it had to unload at a loss.”
“The underlying problem here is that most software is not very good,” explains the article. “Writing good software is hard. There are thousands of opportunities to make mistakes. More importantly, it’s difficult if not impossible to anticipate all the situations that a software program will be faced with.”
In order to address these concerns, companies need to hire qualified, dedicated developers and apply rigid, regularly scheduled software stress testing. However, these recommendations come at a cost and some financial institutions might be more willing to risk staying with current systems rather than investing more in these areas.
“The immediate problem is that as computer programs become more important to the financial system and hence the economy, there is insufficient incentive for trading firms to make sure their software works properly,” suggests The Atlantic.
Catastrophic software failure is viewed as low-probability, stress-testing software is expensive, and creating regulation ensuring good software is problematic.
“The only real solution is to acknowledge that computer programs are going to fail and try to minimize the damage they can cause in advance,” notes the article. “That could include a small trading tax to discourage high-frequency trading, or higher capital requirements to increase the odds that too-big-to-fail banks won’t blow themselves up.”
“Because what if this had happened at JP Morgan instead of at Knight Capital?”
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