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.

3 thoughts on “Wired’s manifesto for radical financial transparency”

  1. Like Henri Bergson or Karl Popper’s conception of an open society applied to the financial system:

    In open societies, government is responsive and tolerant, and political mechanisms are transparent and flexible. The state keeps no secrets from itself in the public sense; it is a non-authoritarian society in which all are trusted with the knowledge of all.

    Given enough eyeballs, all bugs are shallow – and it sounds like an excellent idea.

  2. Argh. No. Not tags. Tags are dumb. That’ll never work. Besides, there are existing standards for reporting and if the system’s failing then the problem doesn’t lie in the format.

  3. Criminals will be criminals, guys cooking the books will cook the books regardless. If they are going to lie, they will lie. Madoff’s books were entirely cooked. All the information in the world wouldn’t change it.

    There is so much data out there already not getting checked by anyone, so more informaton isn’t going to change much. Madoff would have been caught years ago if the proper agencies had the time and the desire to check what he was reporting to see if it was valid.

    More numbers and more detail isn’t going to change it – having enough people to actually check the numbers and make sure it all makes sense is what is truly needed.

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