If there’s one thing every politician seems able to agree on at the moment, it’s that we need to overhaul the way the financial sector works so as to (hopefully) avoid another catastrophic screw-up like the one we’re currently mired in. Part of the problem was caused by regulatory bodies being simply unable to keep up with the huge amount of publicly filed data from financial businesses, and by some of that data being… massaged, shall we say. [image by pfala]
The obvious answer is “more regulation” (though we might want to throw in brainscans for CEOs while we’re at it), but that’s just going to build another baroque architecture on top of the one we already have… and baroque architecture has plenty of hiding places for gargoyles, if I might overextend my analogy.
Daniel Roth at Wired has a different idea, and it’s one that resonates with the way the web works. He calls it radical transparency: a way to sum it up in a nutshell might be to say that instead of worrying about who should watch the watchers, why don’t we make sure everyone – and anyone – can get at all the data in standardized formats?
The whole article is well worth a read, but here’s Roth’s three-point manifesto:
Set the data free
Today, public companies and financial institutions disclose their activities in endless documents stuffed with figures and stats. Instead, they should be forced to file using universal tags that make the data easy to explore.
Empower all investors
Once every company’s data carries identical tags, anyone can manipulate the numbers to compare performance. And they can see details of every financial instrument—not just balance sheets and income statements.
Create an army of citizen-regulators
By giving everyone access to every piece of data—and making it easy to crunch—we can crowdsource regulation, creating a self-correcting financial system and unlocking new ways of measuring the market’s health.
Those of you with no trust in free markets probably find this even less appealing than the current system, but it makes a certain amount of sense to me. As Roth points out, the web has enabled a similar sea-change in journalism, and as a result changes are afoot in governmental and corporate practice around the world, because it has become easier for whistleblowers and contrary voices to have their say.
TechDirt‘s Mike Masnick came up with a similar idea late last year; as he points out, it’s unlikely to gain much support right away because it takes the power away from the financiers, and they’re unlikely to be particularly keen on that arrangement. But that’s all the more reason to discuss the notion now, while trust is at an all-time low; after all, as Masnick says:
We’re not going to fix a broken Wall Street by throwing extra money at the problem, but we might be able to fix it by opening up, adopting radical transparency, and then letting the market more accurately value things based on real data.
Amen to that.