The devil is not in the detail. The devil is the detail: Difference between revisions

{{image|Devil in the Detail I|png|''Devil in the Detail i''. {{vsr|1958}}}}

}}{{Quote|''Der Teufel mag im Detail stecken, aber Gott steckt in den Lücken!''<ref>“The Devil may be in the detail, but God is in the gaps.”</ref>

Some 25 years ago the European Commission hit upon the idea of requiring structured products manufacturers to produce a one-page summary of the key risks of financial products being offered to the public. The document, a [[key investor information document]] became a part of financial products regulation, over the immense and highly principled objections of the legal community, on the grounds that it is ''impossible'' to adequately explain the risks of a complicated legal product in fewer than the 80-100 pages it was presently taking.

This the law-firms found hard to contradict. KIID become law. But the eighty-page prospectus remains — and from a liability perspective, governs — even though no-one can even pretend that anyone reads them any more.  

That our contracts must at some level, be able to be reduced to a fundamental essence isn’t just for [[Ultimate client|gentle pensioners]] dandling grandchildren on their knees. The neurotic particularisation of risks that are, basically, generic feathers many a [[Subject matter expert|subject matter expert’]]<nowiki/>s nest.  

Even sophisticated financial institutions — ''especially'' sophisticated financial institutions — need  easily to render their contracts in simple fundamental terms, because that is how they risk manage them. There is no machine, and certainly no human being, in the bowels of an investment bank that is constantly monitoring the text of its {{isdama}} battery to ensure every covenant is performed, every representation true, every implicit [[option]] buried in a contingent fallback exercised, or costed, [[as the case may be]]. These contracts are reduced to their a few basic economic parameters: that is all the firm’s creaking IT infrastructure can manage. The rest — those lawyer-confected paranoid contingencies the firm paid so handsomely for; that deal with unfeasible externalities, improbable scenarios and outlying tail risks are buried, filed away, to be dealt with, absent any context, by the legal eagles in the heat of the improbably moment that they should arise.<ref>Come to think of it, it is a wonder there ''isn’t'' a squadron of waxen, hairless drones buried in some call centre in Bucharest rifling through that mountain of documents manually covering off that exact risk. It would make a great subplot for an [[Opco Boone]] adventure, in fact.</ref>

This extra detail is, therefore ''heft'': to the extent it confers optionality that the organisation [[Formal|formally]] ''and'' [[Substance and form|substantively]] knows nothing about and is in any case in no position to exploit; if it ''grants'' optionality, it is a risk the organisation has sold but is not managing in its books. In either case, the proverbial [[unknown known]]: we nod along and hope that, whatever happens it isn’t significant.