When SARS broke out in China and Hong Kong several years ago, AT&T knew about it almost right away, because the pattern of long distance calls between the US and that region changed dramatically. Fast forward, now there is Google Flu Trends. Go ahead, click through. I’ll still be here when you come back.
OK, so that is big data (long distance calls, web searches) in service of public health. Here’s the financial crisis play: if Google can do Flu Trends, can they do Bankruptcy Trends? Refinance Trends? IRA Early Withdrawal Trends? Of course they can. Plugging in a new search term is trivial. Choosing the right search term is the non-trivial part.
Let’s guess that the next financial crisis starts in a country where wealth creation has outstripped the pace of regulation and secure systems. A country where a wealth bubble (let’s say in housing) and dark credit markets coincide with a government preference to cover up and delay solving problems. But this country is tied into the global financial system in a big way, hold a lot of T-Bills, etc.
What will be the first hint of the crisis beginning? Will the pattern of remittances change, as loans are called? Will airline tickets be cancelled?
The next crisis will be just like the last crisis, a tsunami. The waters will pull away from the shore, puzzling us until the wave rolls in. These small hints – remittances, tickets, whatever they will be, they will be there. Will we be able to react in time?
A key part of the answer will be how fast national regulators and supra-national bodies can exchange data to get a clear picture of the problem. Open data standards is an issue that extends past national borders. This is why global standards such as LEI and XBRL are so important, and why we need more of them up and down the value chain – especially in the space of transactional data.
At the Data Transparency Conference in Washington a few weeks ago, Earl Devaney spoke on why there was relatively little fraud in the ARRA program (compared to, say, Katrina relief). When the lights are on, the bad guys go somewhere else.
With the US financial system running cyber-security exercises such as Quantum Dawn II, the bad guys are going to go somewhere else. So much easier to manipulate a non-regulated loan market in China. The cyber-crooks didn’t mean to kick the legs out from under the housing bubble, that was just a knock-on effect of stealing money. And so it begins.
I hope that hypothetical situation does not happen except on the pages of a novel, but it is too close to real.