XBRL US Posts Testimony on Using Technology to Address Credit Crisis
XBRL US produced a remarkable 29-page document explaining how adoption of an industry standard computer language could expedite economic recovery. The organization’s CEO, Mark Bolgiano, presented it to Congress at a hearing today. Also today, XBRL US posted for comment a 20-page white paper entitled “Bringing Transparency to the Mortgage-backed Securities Market.” Let’s hope the comment process is even faster and more efficient than the exemplary process they used for more than 10,000 U.S. GAAP tags. Given that experience, six months already invested in the project, and the smaller scope of this new work, it should reach fruition quickly. My only comment is that the schedule in the white paper seems rather leisurely. This should move much faster, not slower, than GAAP. Full Disclosure: Hoping to supplement my current ranching career, I’m long SER (speedy economic recovery).
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If this has the force of law (e.g. the SEC), it appears to be a solid first step in the right direction.
Bolgiano's paper effectively points out that the financial services firms involved in the MBS market were entirely clueless when it came to their information systems and passing (alleged) information to additional interested parties.
You commented in your blog that you were concerned about the pace of applying XBRL to the credit crisis.
I think it is very appropriate for you to highlight that there is a lot of activity going on in this space – for example, we put together a whitepaper based on the XBRL prototype we demonstrated to the SEC last year. The paper can be found on the front of our website http://www.ubmatrix.com.
– Sunir Kapoor
It's a start but the XBRL solution alone in isolation from other methods is insufficient. It's time to let the UML modelers into the solution process. MBS/CMO deals are part data records and part deal modeling language. The structured finance industry still uses modeling methods that trace their roots back to the days of Michael Milken and Drexel. That people was back in the days when we lived with the miracles coming out of a Sun SPARC 2. I like the data recording structure that XBRL offers to rationalize transparent capture of data. I'd love to see the secondary market marked to actual servicing cash flows monthly. But the core deal reverse engineering modeling goes far beyond what a records keeping system is designed to do. The DoD people have been investing in the kind of UML that can solve this part of the problem. Now is the time to look at the whole gamut of solutions and harvest one more of those life changing peace dividends.
Dennis Santiago
Dennis –
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> MBS/CMO deals are part data records and part deal modeling language
>
Is "deal modeling language" what you meant to say, or is it a typo for "data modeling language?"
Until corrected I'll assume "data modeling." "Deal modeling language" returns 3 hits on Google.
Unless something drastic has changed, the problem with modeling systems is that what you get is just that… a model, a tiny glimpse into a MUCH bigger whole. Someone then takes the model & converts it to real code (maybe they write a specification in between). The code is then what gets modified & the model goes on the shelf to gather dust.
I'll certainly check my sources, but I certainly wouldn't look to the DoD for working on this challenge.
If I were in charge & running the world, I'd make sure that the top business schools are teaching the future masters of the universe about systems, data, & impact analysis… something that is absolutely NOT happening today. Data is for geeks.
- David
Yes I did mean "deal modeling". The ecosystem of securitizaion consists of a train of events. Recording collateral data performance and assignment to a specific securities deal is just one of them. It comes after the loan servicing step and before the imposition of the securitized asset deal payout rules. Deal models are representations of the legal contract for the security itself. Structured finance transforms collateral into bonds allowing the source of the collateral to "sell" it to the special purpose entity and thereby create the capacity to issue new lending. That's the whole purpose of the process whether it's pass-thru or exotic. These rule allow for a host of arbitrary optionalities. At this point in time I view Universal Modeling Language (UML) as the tool of choice for this part of the bond ecosystem. UML is a branch of information and rules of engagement representation that has been worked on for at least a decade both in defense and academia. Anyone who's worked intimately with uncertainty theory knows just how similar war games and structured finance are in their core mathematics.
end of part 1
continued …
Don't get me wrong. I've been a longtime proponent of tracking collateral performance in detail and of routinely marking illiquid portfolio holdings to the underlying collateral on a regular basis as part of keeping the secondary market from reaching stasis. The technology is getting there and it will do good but it won't solve all the MBS uncertainties by itself. All I'm saying is that the assertion that solving collateral record keeping "cleans up the ecosystem" of structured finance was a bit too much of a reach to be putting into a bullet point. Technology would progress a lot faster if each contributor to the solution set approached things with a bit more humility. The way I look at it the American taxpayer has paid for a lot of technology in a lot of places and the people should reap the benefits of the entire body of the public good investments they've made. I don't think it would be a bad idea for the administration to instruct the apparatus to investigate how to leverage it.
Some good news. B-schools are responding to the need. I gave a talk to the Masters in Financial Engineering class at UCLA's Anderson School about a month ago and the students were all well versed in "geek". I felt very at home among them. LOL.
In a thread on security (financial, not defense) identifiers, I just posted the following to a Yahoo XBRL list (http://finance.groups.yahoo.com/group/xbrl-public… and figured I'd post it here, for what it's worth. Identification seems a particular issue in the RMBS world, particularly protecting the privacy of individual mortgage holders whose personal loan information has been posted in public on EDGAR for years, albeit in a format making it difficult but probably not impossible to cross-reference the loan data with other personally identifiable information. With all the personal data security technology created for Web 2.0 heretofore, perhaps there is a commercial off-the-shelf solution:
The main reaction I've seen in discussion of CIK issues is frustration with the pre-XBRL scheme. Perhaps my perspective has been backwards: the problem isn't that a particular CIK itself changes, but facts related to a particular CIK change in ways that the current system of disclosure does not contemplate. This creates challenges if users want to compare facts over time.
Perhaps mergers and spinoffs are a larger challenges than restatements, but I'd hope this community could use the new standards to at least mitigate frustration on any and all fronts, whether by making better software applications or by suggesting refinements to the standard. I'd think there'd be a healthy appetite for such tools and, if necessary, rules to improve such tools.
Re your CUSIP and SEDOL questions, Dan, I don't know the current state of the IP rules, but it's an important question that would seem to be good to clarify for this group. It's also interesting to contemplate the future of proprietary schemes in a world of open data standards and global securtization. The U.S. standard for a security — investment of money in a common enterprise for profit derived from the efforts of others — obviously applies many places besides public companies. Improved identification standards integrated with the various XBRL taxonomies, including GL, would seem to hold the potential to make private securitizations, not to mention other financings, much more transparent and efficient to those who rely on the information.
What might be done to unify various public and private and national security identification schemes to help investors get the information they need and make capital allocation more efficient? I understand private securities can get identifiers, but just as an example, the process of going from (1) assumptions about future real property values, to (2) investment in securities based on those assumptions, obviously broke down. In retrospect, it would have been nice for investors to have had an identifier showing exactly who was accountable for the particular assumptions upon which the private securities were based. Systemic risk seems to have been "hidden" in plain sight during the housing bubble and it's tautological that assigning an identifier to something means it's no longer hidden. Now more than ever, there's a compelling public interest in providing for the most reliable and efficient financial information stream possible, and identification schemes must be a vital part of that work.
A new speech on the topic of the data Web by Tim Berners-Lee has the Twitter world excited today — for those who didn't get a Tweet, it's at http://www.ted.com/index.php/talks/tim_berners_le… It's a nice big-picture think piece worth its 16 minutes and 23 seconds, and inspired the preceding rant, for which I apologize. Expect readers of this list will get much more out of the Berners-Lee speech.
Dennis –
Interesting. Perhaps things are done differently on the West Coast.
I am more than happy to argue that ONE of the contributing factors to this financial mess is that the MoUs (masters of the universe) who run things do NOT learn about systems in business school. I verified this with a friend who has taught TOM (Technology & Operations Management… likely what my father had) at Harvard. TOM is a required first year course. It gives a non-threatening 200,000' fly-by of systems.
When I say "systems, I do not mean teaching Java, PHP, or COBOL to MBA students. I mean teaching that things are interconnected in bizarre & unknown ways, particularly inside the rats nest that is the enterprise information systems portfolio.
It is my thesis that they teach finance/accounting in MBA programs because it's easy. And they do not teach systems because that is hard.
To bolster my position, I offer what Peter Drucker said many years ago: "…to treat finance/accounting & systems as two separate & unrelated academic & career paths is unacceptable."
Back to the current day, HBS & TOM… another reason they don't teach systems at HBS is that there's no one to do it… all the famous old goats have retired.
Another observation… when MoUs do their MBA thing since systems are ignored, this by definition conveys the message that systems are unimportant. That's what CIOs are for. It's like in the Army… if they wanted you to have a wife, they'd issue you one. Not issued… ergo, not important.
I asked a friend today if "data management" is taught at the service academies (e.g. USMA, USNA, USAFA, USCGA) & he thought not.
- David
Dennis –
Ok, "deal modeling" it is.
Since you bring up UML, just how is this "deal modeling" done? Someone pulls together a UML model & then….?
Or is the process mostly done in spreadsheets since folks are running around to much to sit down & really think through what's happening?
I haven't been following UML closely enough to know if its gotten to the point where you can compile the model into running code. My point being that models quite often are a form of documentation. Someone works very hard on it to get signoff, but then it fundamentally goes on the shelf & the running code becomes the only Truth. The problem with code being the Truth is that only programmers can read code & they're kept out of the loop as to the business purpose of what they're writing.
- David
David – I'd be happy to talk to you about it more. There is much work to be done and opportunity to collaborate. Ring me on Tuesday next week. Office # is 310-676-3300. I'm out of town all weekend and might not get back until Monday pm West Coast time. Looking forward to connecting. – Dennis
We agree on the larger point about academia in general. There is much to be done to adjust the training regime UCLA's program was the result of another industry group specialzing in risk management. Also a goodly portion of MoU's didn't b-school at all. Many were engineering/math majors with little experience in finance, accounting, law or exposure to what I still consider to be the most important missing lesson in academia, business ethics. It's good to see some schools responding but it's still more innovation than core curriculum. And then there's the ivory tower effect that makes it really hard to connect the dots to the real world. I do guest spot speaking when I can so people get exposed to at least one pragmatic influence somewhere along the way. That's when I tell them under what accounting line item research is really booked. LOL.
I agree about the privacy concerns. Loan servicing tapes contain names, addresses, identifiers, the status of the loan, balances, distributions of payments to loan line item elements including fees and penalties. You can know a person's financial status as dangerously as looking at their DNA's vulnerability to diseases. Loan servicers are also very careful to guard the data in bulk form. It can be used for red lining. This is an information case where, unlike financial reporting of public companies, full public transparency down to the loans list is not the goal.
CUSIPS's are private property. You need a license from S&P to display them. Says so in every data contract I've ever signed. I've been signing them since around 1994.
Dennis –
Never knew CUSIP's were private.
I dimly remember having them around in the mid 70s during the kinda early days of mutual funds. Never gave a thought as to who "owned" a CUSIP. Odd.
Back then I actually remember having to print out certificates now & again. How's that for ancient history!
More currently, when I got a liar's loan in 2001 from WAMU, it was TOTALLY clear to me that whatever alleged process was behind the application "system" was a total shambles. I could only think about how little organizations had learned about the basics of data collection, verification & quality. Clearly a new generation was making it up on the fly. Sure wish I'd followed my instincts & shorted WAMU.
- David
Yes indeed. And it's not just CUSIP's there all kinds of private data that floats around the in the finance universe. I've built my share of professional finance terminals and managing priivately owned content as it meanders through the data warehousing and analytcal systems has been part of the game since as long as I can remember including the stories I got from the old timers when I first took this business up. (Many moons ago too now. Sigh.)
The bottom line is the analysis systems packager is honor bound to be help ensure the copyright owner(s) rights are respected. When I build things I often become the nexus who has to insist that all parties involved are in reasonable compliance with both public rules and private ones. It's a bit of a black art at times. I re-read "Getting to Yes" every once in awhile. LOL.
- Dennis
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Dennis & David — sorry for the delay in posting the last comment from David. The IntenseDebate spam filter flagged it despite the ongoing discussion. Was only non-spam item in a folder of 1,000+ items. Still, hope they've improved their filter by now. Paul