Subject:	International Monitoring: Stuns Bennett And Dodd
Date:	1999/10/25
Author:	Paul Milne <fedinfo@halifax.com>
	Posting History

Posted 19/10/99 9:56pm by Thomas Greene in Washington DC   Brit firm shows US Senators 'the real turd in the Y2K punchbowl'   An analyst with London Y2K consultants International Monitoring lashed out at numerous US government agencies for soft-pedalling international Y2K threats during a Senate Y2K Committee hearing last week.   Chief among these is the Clinton Administration's special Y2K working group, whose recent, soothing report IM analyst Nick Gogerty denounced as "potentially reckless". At worst, he predicted, this sort of Pollyanna pandering could lead the administration to lose its credibility during the looming crisis, and with that its ability to lead the populace to sanity once the madness begins.   Committee Chairman Robert Bennett, a Republican from Utah, might have delighted in pointing out that the Clinton Administration has hardly any credibility left to lose, but graciously held his tongue.   The US State Department also drew fire for suppressing the awful truth about international travel at rollover time. The Department has issued a general travel advisory; but it won't name the names, Gogerty speculated, because it wishes to maintain "near-term objectives", which he declined to elaborate.   What might these be? Deterring cyber-attackers from exploiting the world's weakest transportation systems under Y2K cover? Fear that finger-pointing abroad might lead to retaliatory accusations and subsequent lean times for the American tourist industry? Reluctance to ridicule the Chinese and South Koreans, who can scarcely keep their planes in the air under the best of circumstances? (Come on, is anyone really going to fly CAAC or KAL on 1 January?)   Transportation, energy, insurance, emergency services: all these industries have far more potential to suffer from Y2K mischief than we suspect, Gogerty believes. But it is in the international banking system where he sees the greatest threat to the continued survival of the human race. Here a loss of confidence can lead to widespread panic, and panic can lead to economic catastrophe.   International Monitoring prepared a detailed report on the banking issues, but, as Gogerty said, it would not be prudent "to publicly discuss the detailed risks...in a public forum such as the one before us today." He submitted the report as prepared testimony.   The Register despaired of ever seeing it. But the Senate Committee apparently disagreed with Gogarty's estimate of its potential to scatter the herd, and promptly posted it on its Web site.   It was a difficult read, but we persisted. The report boldly asserts that "Herstatt risk could be the real turd in the Y2K punchbowl." And, no, we haven't got a clue what "Herstatt risk" means either, but we do love a good metaphor. The best we could make of it is that Herstatt is a German banker who gained fame by inadvertently rendering his bank insolvent.   We think it could be called "Leeson risk" as well. If we read it right, the greatest of all risks faced by an institutional bank are eagerly provided by the human beings it employs, all of whom, according to Gogerty's reckoning, are imbeciles. The banking system functions only because computerised accounting provides a safety infrastructure which catches errors and prevents the imbeciles from doing what God created them to do: accidentally bringing the entire world economy to grief.   It might work like this: enormous banking "clearinghouses" handle, on a daily basis, credits and liabilities in the range of tens of billions of dollars. A single human error -- say, something trivial like a misplaced decimal point -- is allowed to pass the computerised accounting infrastructure by an obscure Y2K stuff-up.   This causes some gigantic and time-sensitive payment upon which a hapless clearinghouse depends to be missed. The clearinghouse then defaults on payments it owes to others because it can't collect the income it's owed. A domino effect develops, and total world anarchy ensues.   Alternatively, the clearinghouse might make its payments in spite of being unable to collect, simply by borrowing hundreds of billions of dollars. Paying interest on that, even for a matter of days, might wipe out a month's profits. If the problem were to appear in several markets at once, the dreaded domino effect might yet be triggered, and blood flow in the streets.   "We believe Y2K will be the second costliest accident in history," Gogerty claimed. (Assuming WWI was the first, then Herstatt really is the Mother of all turds.) But, "barring nuclear or major chemical failures, loss of life should be minimal in the USA," he chirped. He had perhaps meant to reassure the Committee, but one could have heard a pin drop when he finished his speech. It was all over their faces: "what the Hell is 'minimal' supposed to mean? And worse, what might 'maximum' mean, and which poor tribe is going to represent that extreme?"   It was several minutes before Co-chair Christopher Dodd (D--Conn) summoned the courage to ask.   "There is a constant rate of loss of life due to industrial accidents in the this country every day," Gogerty explained. "The Y2K bug and, let's say, the 'non-standard behaviour' of individuals around that [time] will...lead to a spike in accident rates."   "All right, we'll leave it there," Dodd replied with a nervous smile. He didn't seem to appreciate that, from Gogerty's point of view, he'd just been given the good news.     =================     There is NO doubt whatsoever that the Federal Governernment has been advised in no uncertain terms that the potential consequences are DISASTROUS. has the president gone on TV and openly, honestly ,candidly explained this terrible risk to the public, so that the PUBLIC can decide what to do about it for themselves?   No.   They have secreted it away and have gone on record to say that you might want to have half a tank of gas in your car.   Bennett and Dodd both sat there and heard these words. Ha seither of them come out with a marked warning other than the three day snowstorm crapola?   No.   "We believe Y2K will be the second costliest accident in history," Gogerty claimed."   Has the public been informed of this opinion? Or anything remotely like it?   No.   And absolute morons like deShit blather that there will be NO economic impact at all, absolutely NONE.   Gartner says that the failures are escalating rapidly, are barely under control  now and will escalate even more dramtically in the next 30 days.   deShit says absolutely NO economic impact, absolutely NONE.     http://www.theregister.co.uk/991019-000022.html     -- Paul Milne "If you live within 5 miles of a 7-11, you're toast"

-- a (a@a.a), October 26, 1999

Answers

Could someone please extrapolate on 'the failures rapidly escalating'. Enquiring minds want to know....

Owl

-- Owl (a@a.com), October 26, 1999.

Sounds like the Turds May Hit The Fan sooner than 1/1/00000000000

-- Ashton & Leska in Cascadia (allaha@earthlink.net), October 26, 1999.

"failures rapidly accelerating"
Owl-I believe this is a polite way of saying that the failures can no longer be kept hidden from the public in the individual shops. Although several companies I have worked at recently, and no, I'm not in remediation, have experienced some failures which have shut down their systems for 12-36 hours, none of this is public knowledge as it did not injure or cause problems for the general public. This will change shortly.

Got water purification tablets?
John

-- John Galt (jgaltfla@hotmail.com), October 26, 1999.

Not gonna happen. The government said it wasn't and I believe everything the government tells me.

-- Dr. PollyDork (DrPollyDork@moron.com), October 26, 1999.

As I read International Monitoring's definition of Herstatt risk, I believe they are referring to a gridlock in data exchange at the foreign exchange/currency level; not an error in a transmission. If global bank A is down due to a Y2K disruption and cannot receive or send data than global bank B cannot collect what bank A owes them so bank B cannot pay bank C and so on. This applies even if banks A, B,and C are themselves 100% Y2K compliant and bank A is down due to an external disruption like a local electrical disruption.

Given the daily magnitude of Forex exchange, Gogerty says that no bank can tolerate a delay in settlement as the cost of delay mounts at millions of dollars per hour of delay. Several trillion USD equivalents are traded per day and at 6% per annum, carrying cost are millions per hour.

Therefore, Gogerty said that the majors will likely pre-emptively not trade prior to rollover so as not to be exposed to a payments gridlock. A halt in Forex trading will halt global trade as Letters of Credit must be opened and cleared simultaneous with movement of goods.

Nations that rely on trade for critical export revenue (single commodity producers like the OPEC nations come to mind) or nations (us) that rely on critical raw materials (like chrome ore only available from S. Africa or the Phillipines) from nations that have banks that are down may not be trading, importing or exporting until the critical countries' Y2K disruption are fixed or sufficently worked around. Note Cargill's pre-emptive action regarding agricultural commodities traded with S. Africa.

These pre-emptive actions are part of contingency plans that are to be implemented whether Y2K = BITR or Y2K = TEOTWAKI. These actions appear to eliminate the possibility that Y2K will a bump in any road in that the impact of the contingency plans will have an effect independent of and in addition to any Y2K computer snafus.

As Mr. Gogerty was testifying live on a C-SPAN broadcast, I believe the above is what Mr. Gogerty wanted to impart to the Senators without alarming the C-SPAN viewingf audience.

-- Bill P (porterwn@one.net), October 26, 1999.