On-Demand Enterprise just published a piece I wrote about some of the lessons learned from the current financial crisis and cloud computing. Although there is of course no direct connection, there are some interesting conclusions.
Although I’m not suggesting that it was the crux of the current crisis, one of the questions that has come up recently is why Wall Street’s massive investments in value-at-risk analysis system did not curb the downfall. We have not heard (at least not yet) that these risk analyses were blinking with red lights and were ignored. In an HPCwire piece entitled “The Quantitative Models Tanked Too,” editor Michael Feldman tackles this issue. Although not the only explanation, one of the issues raised in the article is the fact that the models used were over-simplified. Feldman explains that “in some cases, limits in computational power made these simplifications necessary so that the valuation models could be run.”
Done right, cloud computing offers nearly limitless computing power. Had they used a cloud service such as EC2, and software that is built to scale on the cloud, the quants on Wall Street could have easy, cheap and on-demand access to massive computation power.