New Fortune.com managing editor (and ‘95 Medill grad) Daniel Roth (@danroth) gave me a chance the other day to write a guest column on transparency and financial recovery and XBRL. It’s now here.
Thanks to another Fortune.com editor, I’m reminded of a lesson I learned myself at Medill (‘86) about the value of good editing. My original draft was distracted with details about California’s financial crisis and tortured by metaphor mania. Now it gets to the point. Hope you enjoy it.
By the way, Fortune embedded a video of SEC Risk Director Henry Hu in the piece, explaining credit default swaps in plain English. He compares “empty CDS” to short selling. Requiring sellers to have “skin in the game” — the solution implied by the video — is a perfectly legitimate way to discourage both empty CDS and short selling. The downside, however, is that doing so restricts market flexibility. Then again, so do better disclosure requirements, like GAAP for public companies and XBRL for ABS.
In opaque markets, substantive “skin in the game” regulations may be essential. The advantages of information to make markets transparent are more market scrutiny and lower barriers to finding prices that are closer to the ideal of equilibrium. By all means, don’t sell insurance to potential arsonists! Better yet, create building codes that protect structures from arson and accidental fire alike.
By the way, if you’re curious about the California point in my piece before it was wisely edited for length, it was this: Despite the state budget crisis, good teachers and good financial building codes could yet combine to restore our status as the Golden State.
Things looked pretty bleak after the 1906 quake, too, but this photo — which data tagging technology automatically inserted into WordPress for me — is a nice reminder that many forms of progress are always possible.
I’ve been the strongest possible advocate for global free trade ever since my Soviet Economic Institutions professor diverged from the syllabus to draw Ricardo’s theory on the board and prove unequivocally and concisely that it makes everyone better off. I still am. Dennis Santiago, however, makes strong arguments for local investing for California and Los Angeles — and good news: they don’t contradict the case for global free trade. Continue reading ‘Local Investing Can Build Global Markets’
I watched a C-SPAN replay tonight of a Jan. 29 panel at Davos in which five industry leaders pontificate about the future of the world. This was after tonight’s 60 Minutes lead report on the exclusive Davos gathering. The 60 Minutes report was as good as ever, but a failure of vision makes itself apparent in the Davos C-SPAN tape.
First, the CEO of a global bank, in response to an all-too-polite question about why the financial sector isn’t moving toward XBRL technology to support transparent securitization, dismissed the question with a statement to the effect that it failed to consider the “quality of the assets” — implying that only the most revered debt securities can hope to return to marketability.
BRUSSELS–As I’m enjoying outstanding Belgian cuisine with the family of a CLOUD, Inc. colleague after a day of meetings about how computer standards can improve the clarity and efficient use of information and provide for more accurate evaluation of the trust that one might place in information, a 500-mile drive south of here the world’s financial leaders are contemplating the future of finance.
The House approved S. 303 by voice vote on Monday, Dec. 14. The bill text and debate are immediately below; the debate starts on page H14837. An easier-to-read version of S. 303 is also below. The most important part of the bill, about data standard requirements, is in xml format here.
Back on June 17, I blogged about the Government Information Transparency Act. The goal of government information transparency took a step closer to reality today when the co-sponsors of the bill, Reps. Edolphus Towns and Darrell Issa, added their bill’s provisions to a Senate bill to improve the federal grant system. The gist of the legislation is that when it is implemented, taxpayers will get protection via transparency and rules-based reporting in a way that’s similar to how investors now get better information from public companies via a combination of U.S. GAAP and XBRL. The good news is that government grant accounting is a heck of a lot less complicated than U.S. GAAP, so that protection should be faster to arrive, much less expensive to implement, and even more reliable.
Here’s video of this landmark meeting to advance government transparency:
Economic Transparency
Also today, the SEC posted a new more detailed comment on a pending rulemaking about how asset-backed securities are disclosed. It’s 13 pages of plain English. (See background, including excerpt from a speech by SEC Chairman Mary Schapiro.) Of the millions of words written about the financial crisis, these pages include just about every word you need to know:
Edgar Online re ABS: Modernize Disclosure, Cut Costs, Achieve Transparency, Restart Securitization
Even better, unlike most of those other millions of words, these words include an explanation of how to reconcile the interests of Wall Street in profits with the interests of all Americans in healthy, working, fair, transparent capital markets. Let’s hope the words spoken on Capitol Hill today and the words posted by the SEC today all matter — soon.
