Re-Modeling Our Financial Future

The turmoil on Wall Street has raised a host of intractable questions. Many of us wonder, for example, if the financial marketplace has become too complex to be properly understood and managed. As The Economist notes, “America’s financial system is undergoing a radical reassessment of what are acceptable levels of capital, leverage and interest rates” and – more fundamentally – acceptable levels of risk.

As dean, I am always on the alert for opportunities to move engineering into new domains, especially those that call for interaction among several disciplines. When these opportunities offer us the potential to address a pressing real-world concern, so much the better.

With the global economy sliding into recession, Letters & Science Executive Dean Mark Richards and I recently convened a “town hall” meeting with UC Berkeley engineers, economists, mathematicians and statisticians to discuss what we should and could do. While it would be naïve to assume that we could have an impact on this crisis in the short term, we can contribute over the long term by educating a more knowledgeable and effective cadre of leadership.

We see a pronounced need for a curriculum in financial systems and operations, a domain that rests on what Laurent El Ghaoui of EECS and IEOR calls “decision-making under uncertainty.” Sound market practices cannot draw upon quantitative expertise alone. They must also take into account overall systems, risk assessment and quantification and an examination of how discrete events propagate correlated consequences throughout the whole — the kind of thinking that comes naturally to an engineer. Friends of the college like Coleman Fung have already been suggesting this to us for some time now.

A cross-disciplinary faculty team has begun to define curriculum at both the undergraduate and master’s levels. We expect it will be housed within IEOR, drawing from EECS, economics, mathematics and statistics.

Clearly, the financial services sector of the future will be a chastened creature. “I foresee less demand for the design of exotic derivatives, instruments that appeared to be profitable only because risks were not properly accounted for,” says Bob Anderson of the economics faculty. “What Berkeley can do is educate analysts who can design instruments that are more cautious and accountable to risk factors.”

I welcome your thoughts and ideas.

S. Shankar Sastry
Dean, College of Engineering
NEC Distinguished Professor of Electrical Engineering and Computer Sciences
Roy W. Carlson Professor of Engineering
Email Dean Sastry

CITRIS Headquarters Opening Celebration

Friday, February 27, 2009

Please join us in celebrating the new home of the University of California’s four-campus Center for Information Technology Research in the Interest of Society with a reception, guided tours, interactive exhibits and more.

Topics: Public policy, Faculty