The Tight-Integration Trap

This goes beyond our core business interests and positioning. It is about complex, tightly coupled systems. A dangerous mix.
A complex system can have unintended consequences and tightly coupled in most of the cases means there is not enough time to react to them.

Pointedly speaking, there is the danger of integrating systems "to death".

In my simplified definition a system is complex, if it contains subsystems of co-evolution. Economy is complex, most financial systems are complex, investment and risk management is complex, quant finance systems are complex, because they contain sessions of model calibration and re-calibration creating and surfing on price waves.

Complex technical systems, say, chemical reactors, need to cope with the tightly coupled complexity and understand that safety mechanisms do not always make the system safer, because of too poor instruments, wrong interpretations, unexpected connections, false alarms, ... Again, the worst kind of safety system is the one that gives you false comfort.

In finance: what have we learnt from having placed complex safety systems in form of complex credit default contracts, ....?

In the practice of financial systems there is the tendency towards all-in-one integration. Tight coupling is promoted as differential advantage. But in a complex system you need different paces because of dynamically changing requirements.

Loosely coupled, but interacting modules was the answer. We do exactly this and do not waver, even if the market trend was against us ...  The financial sector must learn from the nuclear industry?