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Monday October 6 10:02 AM EDT
Millennium Bug Threatens Financial Chaos
By Nick Edwards
SINGAPORE - The millennium bug computer crisis threatens a global
liquidity lock-up that could send the world's financial markets
crashing.
With computers and automated systems now dominating global financial
trade, experts fear the failure of a small proportion of systems on
January 1, 2000, would bring chaos.
Machinery installed to make markets more efficient could cause their
collapse, shattered by computers that fail to recognize the start of
another working day.
At the end of 1999, many computers will either crash or start gushing
out meaningless data because of programming shortcuts taken decades
before to save computer memory.
Abbreviating years to two digits did save memory, but set a time bomb
ticking for the end of the century when clocks inside computers will
read a meaningless '00' for the year 2000.
And when the machinery controlling the money that makes the world go
round seizes up, so too will the markets.
It is our prediction that it will only take five to 10 percent of the
world's banks payments systems to not work on that one day to create a
global liquidity lock-up," said Robert Lau, managing consultant at PA
Consulting in Hong Kong.
I don't think the markets have quite grasped the implications of what
will happen if the entire system goes down, " Lau told Reuters.
Peeling back the layers of the millennium bug problem is a little like
peeling back the layers of an onion and the end result is the same --
it brings tears to the eyes, analysts say.
Banks will not be able to settle accounts, investors will not be able
to access funds, traders will not be able to make deals, consumers
will not be able to get cash, companies will not be able to buy
materials.
Computer experts and business analysts are concerned that the scale of
the problem is severely underestimated.
Lawyers say millennium litigation in the United States will be huge.
We forecast $1 trillion of litigation in the U.S.," Jeff Jinnett of
U.S. law firm LeBoeuf Lamb Greene & MacRae told a conference in London
earlier this year.
Taskforce 2000, a body working with Britain's Department of Trade and
Industry, thinks the cost of ridding computers of their millennium
bugs in Britain will be about 31 billion sterling.
In the U.K. it would take the commitment of the entire IT (information
technology) industry and that is not about to happen," said Taskforce
2000 executive director Robin Guenier.
IT experts believe that if everybody in the world who has even a
modest understanding of computer programming were to begin work
correcting the millennium bug today, only 25 percent of the world's
affected systems could be rectified.
With international financial markets entirely intertwined, curing the
millennium bug on Wall Street would be pointless if Asia were
crippled.
Some analysts think Asia's millennium problem is not as great as that
of the West because computerization of routine business functions is
not as widespread.
But key financial markets like Tokyo, Singapore and Hong Kong are
exposed.
There might be less computing power in Asia, but that does not mean
there is any less risk," Lau said.
A global survey of millennium bug awareness and preparedness is under
way at PA Consulting, which aims to publish it by the end of the year.
Lau expects the findings to make depressing reading.
One problem is that companies underestimate the problem significantly.
Once they begin to work on it, their estimates of the cost of
correcting it begin to escalate. Company directors do not see it
initially as a business issue but an IT issue. Really it's the biggest
business issue they face," Lau said.
On the international foreign exchange markets for example, more than
$1 trillion a day changes hands.
Insurance is seen as one solution -- at least in terms of compensating
firms hit by losses from the bug.
But insurers face myriad millennium problems themselves and could end
up being the biggest victims of the crisis.
Not only do they have to tackle their own internal systems problems,
their financial market transactions could be frozen by a global
systems failure, their investments could plunge and the tangle of
liability claims could be immense.
Clients have not set aside enough money to deal with the millennium
bug and the scale of the problem is too large for them to handle
alone," said Singapore-based Aruno Salvi, general manager of Reliance
National Asia Re.
Sorting out who will pay for the damage by the thousands of cars
likely to be in accidents caused by computer-controlled traffic lights
that just blink out all over the world on January 1, 2000, is just one
example.
But there is a silver lining to the millennium cloud for some, as PA
Consulting estimates it could see the end of three percent of the
world's companies.
On one level the millennium bug is a great opportunity. Some of your
biggest competitors are going to go out of business," Lau said.
Copyright, Reuters Ltd. All rights reserved
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