One of the real root causes of our current economic crisis is a reliance on numbers for evaluation and decision making instead of on banker knowledge. Credit ratings, for example, have been used as the basis for mortgages in place of that old stand-by, personal (or institutional) experience with the borrower. This did make things easier—at least on the surface. The lender didn't have to take responsibility for future actions on the loan by the borrower. The initial lender had acted on the numbers, and could rest easy.
But the score also becomes an excuse in case of failure, a remove from responsibility. This is particularly important when actual responsibility for the loan also disappears—that is, when the loan no longer rests with the bank, but has been sold, split into pieces, and re-sold. “Hey! Don't blame it on me. I only followed the numbers.”
I only followed the numbers.
That may come to haunt us as much as “I only followed orders.”
Not surprisingly, the banks that are weathering the current storm best are small, local banks, where loans are made based on personal observation and from money that the bank controls. The bankers, responsible for the money they are handing out (and with no expectation of transferring that responsibility to anyone else), can't rely on the numbers. Instead, they learn to rely on their own judgment and on institutional memory within the community.
My point? Reliance on numbers is no replacement for reliance on knowledge of results, of the past, of the people.
Thing is, reliance on results, the past, and people also requires trust. And trust, given the size of most of our contemporary institutions, is extremely difficult to establish. How can you really get to know anyone in an institution of thousands, tens of thousands, or more?
You can't. But we aren't willing to reduce the sizes of our institutions, so turn to numbers instead.
Numbers that have failed us in the past (No Child Left Behind), are failing us now (the sub-prime crisis), and will fail us in the future.