Often it is only in retrospect that participants in an economic bubble realise that the point of collapse was obvious. In this respect, economic bubbles can have dynamic characteristics not unlike Ponzi schemes or Pyramid schemes. I would not suggest that the current crisis was caused by deliberate or malicious fraud. However, it is with the benefit of hindsight that we can now see just how irresponsible were the lending and investment activities of some of our major financial institutions. It seems only a handful of years ago that subprime lending in the UK was still relatively niche. The late Sir James Goldsmith said “If you see a bandwagon – it’s too late…” However, like many ‘bandwagons’ the lure of profitable ‘easy money’ being made by this sort of lending proved to be too appealing to mainstream institutions who either bought out some of these smaller specialist lenders, or set up their own operations. Those who didn’t directly engage in lending were lured into investing in assets that either did so explicitly or unknowingly as the contagion spread – often unseen. That having been said, there were people who pointed out the warning signs. Yet there were many who adopted Nelson’s claim of “I see no ships”!

Ponzi and Pyramid schemes rely on the seduction of high returns being easily available and their success [failure for others] is when more and more people invest in the ‘idea’ only to find after a time, and when it’s too late, that they are part of a ‘bubble’ that has burst!

Sadly and perversely, the underlying economic fundamentals of our economies are not as bad as the crisis would seem. Like the hype that created the bubble, the hype surrounding its downfall is made up of a significant degree of ‘perception’ and ‘confidence’ [or lack of it]. The ‘short sellers’ have been criticised for their behaviour – and often rightly so – but is their behaviour really any different to some of the negative journalism that is fuelling the current spiral? There are people who are making money out of the negative stories and there are some others that simply prefer to moan – whether that is about the markets going up, or about them going down!

There will be winners and losers from the current situation and the current ‘bad guys’ are the ‘suits’ that ran the banks and investment companies. It is interesting to look back at an observation by the Cambridge economist John Maynard Keynes who observed as long ago as 1931 – during the Great Depression – that “A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him”. Looking at current perceptions, it looks like this could be as true today!

We’ve been doing quite a bit of work lately around the FSA’s Retail Distribution Review (RDR) and yesterday published a survey (click here for further details) that was undertaken by the major technology vendors and their readiness/willingness to adapt their solutions to the potential new business environment.

What is interesting is the way in which technology is becoming an integral part of the way in which the Regulator is operating the market. Take the Treating Customers Fairly (TCF) regulations, for example – a great deal of the provisions set out by the FSA revolve around the provision of Management Information (MI) – good, heavy-duty, robust MI. The FSA characterises a successful business as one that has MI engrained within their culture and from that best practice and control can be exerted over the operation of the enterprise.

Unsurprisngly, if you want good MI you need a good technology solution. The majority of vendors we surveyed in our RDR report offer in-depth MI coupled with the ability to generate the requisite forms of data to assist in the TCF requirements – also, some provided fixed MI output that enables other FSA outputs, such as Regulatory Reporting, eg RMAR or Customer Complaints.

Some larger enterprises might also be looking at developing a more bespoke Business Intelligence architecture – late last year, Microsoft launched a server-based suite of applications that enables a high degree of integration and reporting of disparate data sources. It is built on top of their SharePoint Server and SQL Server 2005 solutions and is called Office PerformancePoint Server 2007. Tools of this type are able to process a wide range of data from all parts of the organisation and create management dashboards, scorecards and alike to assist in the management of a company.

What is clear is that good automation of MI means less pain in terms of fulfilling regulatory obligations.