Tag Archives: regulation

Wired’s manifesto for radical financial transparency

stock value reportsIf 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.

Unlicensed tanning pills circumventing regulation

tanning bed tubesHere’s a story for the modern age: despite warnings from the UK government, internet sales of an unlicensed tanning drug are booming. [image by savv]

Melanotan is a synthetic hormone developed by skin cancer researchers that has not been tested for safety, quality or effectiveness. The drug is being sold over the internet and in some tanning salons and bodybuilding gyms. It works by increasing levels of melanin, which is the body’s natural protection from the sun.

Now, it’s no news that people want to take short-cuts to the body (allegedly) beautiful. What is news is the fact that laws and clinical tests can’t keep up with the pace of supply and demand any more; once an idea is out there, someone’s going to see the market potential to make money selling it, and people are going to buy it.

Even when laws or bans are passed, the web effectively negates nation-state boundaries – what’s illegal here in the UK may not be in the Nigeria, for instance. Will controlling the distribution of drugs become as unwinnable a battle as preventing music piracy?

Oh, by the way – the UK government is at least trying to warn of the potential side-effects of the tanning drug:

Melanotan II has also been linked to an increase in libido.

Yeah, that‘ll discourage ’em.

What does the financial crisis mean for the future?

A joker puts the value of a share on the $1Billion headquarters of failed bank Bear StearnsWith the sale of Bear Stearns for £2 a share on Sunday (it was worth £170 a share in April last year), the Credit Crunch claimed a high-profile casualty. But in the long run, what does a possible US and global recession bode, after things clear up? Some people think this may be the worst we get, others think there’s a fair few other banks and businesses looking shaky. However it continues, there’s no doubt that the markets are going to change following the collapse of a lot of mortage-based finance.

The crisis has been caused by an decrease in the enforcement on banking legislation. Without sufficient checks, financial companies offered loans to people who couldn’t afford it, then traded the loans like shares across the world economy. As lenders failed to pay up and defaulted, the companies who traded the paper behind the loans began to make losses and a lack of trust led to less liquidity, or money available for lending between firms. Bear Stearns was one of the companies most at risk, like Northern Rock here in the UK.

Many economists and analysts are starting to look at the repercussions of the credit crunch. Some say that the reduced interest rates by the Federal Reserve and Bank Of England will lead to inflation problems, especially with commodities like wheat, gold and oil recently at all-time highs. Others compare the crisis to other recessions around the world. Although Japan in the eighties and the Great Depression are scary comparisons to make, some say that Sweden in the early nineties is the best one to make, and a good example of how the Fed can get out of this situation: more regulation to clear that bad debt quickly.

But if we’re looking at ways to stimulate the economy, surely we should be looking at moving the focus away from the financial markets and ‘bubbles’? During the dotcom and housing bubbles, wages have stagnated and many have succumbed to borrowing large amounts to keep consuming. A possible solution: invest in new infrastructure for alternative energies, mass public transport and energy-efficient products. Jobs will be created to keep the economy afloat and the financial world could settle to a fairer and more balanced system.

[photo via Calculated Risk]