At a fundamental level, a bank is nothing more than an engine of greed. I don't mean that in a derogatory sense: I mean that a bank is a simulation of the human emotion of greed. As such, it has the capacity for both great good and great evil. Left to its own devices, a bank will naturally seek to absorb all available value in an economy for its shareholders -- that's what I mean by "a bank is an engine of greed". Because of that, banks critically depend on regulations to tailor and guide their behavior to optimize their positive effect on society (banks are really good at another human trait: following rules). A bank's natural tendency will always be to push against the regulations that society places around it, so the balance between regulation and greed is where society needs to focus to measure whether a bank is doing good, or needs more regulation,...or needs to be disbanded.

Traders have a nasty job...they have to ride that thin line between regulation and greedy actions. If they step too far one way, they're "rogue" and need to be put down like a rabid dog...if they step too far the other way, they're wimpy and ineffective and need to be fired. The problem with riding that thin path is that it has lots of hidden potholes and stumbling blocks that can easily pitch the trader to one side or the other. So a big part of a trader's skill is to recognize when they've stumbled from the path, how far they can stray, when to stray, and how to get back on the path.

If I think about a few of the past rogue traders (Nick Leeson, the LTCM crew, Kerviel), the one thing they all had in common was that they started out with their hearts in the right place: they all strayed outside the thin path between regulated investment and unregulated greed in order to benefit their firms but they were unable to adjust their course in time before things got out of control. HOW they got there is what should really concern us, because it points us to the types of new regulations that may help tighten up the line and smooth out the path so this happens less often with less impact. In a sense, then, I agree: UBS's rogue trader is an indication of evolution, not a singular damning event.

What happens next will determine whether we as a society learned anything from UBS's failure, or whether we are content to keep evolving along this same line.

Obviously, you aren't aware of the history of investment and investment banking. It is unlikely America would exist without the practice of investment banking -- it certainly would not have been discovered by Europeans in the manner it was, nor would it have evolved as the world's commercial powerhouse for the last three centuries. You owe investment banking a great deal more than you realize.

A 23-sigma event can become a 1-sigma event simply by changing the probability distribution your models use. The problem isn't really the math...sigma measurements of risk *DO* work, it isn't intellectual fraud. The problem is that the banking industry's decision-makers are willfully misusing the math because they do not want to accept what the proper models tell them. It is extremely, extremely, enticing to keep using a Gaussian distribution in your big snazzy exotic barrier option valuator rather than the more accurate t distribution because the Gaussian keeps telling you you're making money but the t says hey, you're deep in the grey there, pal, and you're gonna get bit if you keep making this bet!

The math works (most of the time) if you use it correctly. What we need is to get back to a point where massive failures really can be blamed on pure chance or a bona fide failure of the math, instead of willful ignorance in the face of unbearable temptation.

[Just to be clear...I am NOT defending UBS in any way, shape, or form...but I'm also not condemning them. What happened is endemic to the banking industry as a whole, not UBS specifically.]

There was just a posting this morning from within the Twitter community questioning Twitter's claim to have 200M users -- but only 20M *active* users. People said that's unhealthy. I disagree -- natural populations tend to obey the power law: each level of organization is tenfold larger than the next higher level of organization. Cities are distributed in a power-law fashion. Media (movies, records) consumption tends to follow a power law. Wealth is distributed according to the power law. And social networks tend also to be arranged thusly: X number of people show up...X/10 actively participate...X/100 do it on a daily basis...X/1000 are heavy users, etc. We see this in Twitter...we should see it in Facebook too, yet that is not what the company wants you to believe.

When I see Facebook say they have 500M users, I see 50M active users, and probably 5M daily users. What we REALLY want to see is Facebook's daily visit count (as a count of the number of accounts that access the website daily). I am very willing to bet that it is not 500M...I'd bet its more like 5M.

If this is the case, then you're doing it wrong.

Instead of assuming that the passenger audience are ignorant cargo, assume instead that passengers are potential partners or at least admit that they are participants. People panic and stampede because they lack direction, not because they're too stupid to do anything else -- the last few attempted plane bombings have demonstrated that (including the one 9/11 plane that never reached its target). And humans can operate on a surprisingly small bit of direction.

So leverage the fact that there will almost assuredly be smartphones and tablets seeded throughout the plane. Require people with these devices to have loaded an app that communicates with a system on the plane (NOT the avionics...that would be silly) that a) provides guidance when the plane crashes, b) renders the device useless during takeoff & landing so they have no choice but to put them away, and c) avoids a jamming signal piped into the cabin that renders all other devices unusable. If the plane crashes, I guarantee you that the first thing everyone will do anyway is reach for their devices anyway (I know I will!)...why not have an app there that directs them to the nearest exit with a great big flashing arrow? And because if you are NOT running the app you won't be able to do anything with the device anyway, this gives the airlines a captive audience to upsell in-flight network access and entertainment through that app.

Then, instead of telling people "please turn off and stow your electronic devices", you can warn people "please note that if you are not running PlaneSafe version 2.8.3, your device will be jammed for the duration of the flight". They'll put it away if it doesn't work...seat space is so limited nowadays that every cubic centimeter is too precious to waste holding a non-working device.

Oh, and let's avoid all the carping and complaining from the government conspiracy folks: release the source code of this app as open source. Better yet, don't even write it -- just release a spec and have the open source community and the corporate software world write it. Airlines can recoup the cost of installing the system by upselling services and content, and they can spur adoption by adding yet another fee to the tickets of anyone who has NOT installed the app on their device. Even the TSA will be happy, because they'll now have a way to tell the "good" devices from the "bad" ones (remember, humans think more clearly when they have a modicum of direction).

Let's put a finer point on it. A company can create a virtual machine image for each employee to run in a company-provided VM software (like, say, VMWare) installed on the employee's personal computer. That VM is then a slice of the company's green zone -- they can be as anal as they want about security, can even configure the VM to lock itself down so no cut & paste from the local machine, no access to local drives from within the VM, network from the VM is only via company VPN, etc. etc. -- it is in essence a bubble of the corporate computing estate inserted into a hostile environment (ie, the employee's machine). Now lets look at maintenance and repair. The company can contract with an external service & support provider (like, say, GeekSquad) to provide base level support to all employees -- just "get the VM working again" level of support, which may include ripping out alpha drivers, malware, incompatable apps, whatever the employee has done to hork up their machine. The employee has to agree to let this support crew un-hork their machine...or the company will provide them with a 5-year-old laptop to use that's completely locked down. There's probably some refinement to this model, but you get the picture. Not enough security for you? OK, then put the company VM image on a military-grade USB stick (like, say, an IronKey) -- if it gets stolen, or the employee's machine gets stolen, so what? its a doorstop without a password and/or finger swipe. Now...here's the problem with the model: If you're going to lock down the corporate VM so it cannot interact with the employee's host machine, you're going to have to provide access to the Internet from within the corporate firewall -- and then the erosion of your security begins. Actually, this is the situation we all live with now with corporate images running on corporate machines...it gets no better just because you move the corporate image to a VM. Your employees are going to want to move information into and out of that corporate VM running on their machine -- how do you solve that problem? I think there is an opportunity here for "permeable firewalls" like FaceTime Communication's product -- systems that run alongside VM environments and carefully screen what moves between the host and the guest o/s. The policy should be un-editable by the employee (not hard to do: just encrypt it) and it should be aware of the source of the data (can a system's clipboard tell where its content came from?). Does anyone know if such a product exists yet?

In the mad rush to recover the cost of research, we have forgotten the value of play and undirected observation. IMO, that's the real process underlying the underestimation of the pervasiveness of reversion to the mean. Let me explain my point.... I work on a technology selection team for a large enterprise and while we try to use the scientific method, we aren't trained scientists and don't often get to do it as rigorously as @tgibbs describes above. Whereas we're just looking at emerging technologies, which is not the same as looking at a physical phenomenon....documentation being what it is on these products (ie, usually very poor) we tend to end up doing a lot of cleanroom investigation which treats these technologies as novel phenomenon to be studied. So our situation *does* look a lot like basic scientific research. We've notice that our studies tend to fall into two major phases: "playing" with the technology, and measuring the technology. The second phase is self-explanatory -- its the phase that looks most like scientific investigation because this is where we formulate hypotheses and test them. That first phase, however, is more akin to @tgibbs's "initial observations" and its here I think the scientific world is stumbling. I know if we don't spend enough time playing with a technology, we end up digging through measurement data looking for hypotheses that the data can prove (which is NOT the way to do a study!). The lesson here is that the first phase of a study sets the stage for the second phase...but because it involves an activity that is inherently un-monetizable, it is often skipped, skimped-upon, hidden, downplayed, de-prioritized. Patrons and stakeholders see little value in the observational or "play" phase of a study because it appears like time is being wasted and because there is no clear way to recover the money spent to support this phase (*except* as a data collection activity for the hypothesis-testing phase). But it is during the observational phase where our brains are hunting for potential patterns and raising useful questions that themselves become the hypotheses we test in the second phase of a study.