Wednesday, December 03, 2008

Transparency and ending the Financial Crisis

Mike Masnick has interesting post on the requirement for transparency in order to do trade. The basic premise is that lack of transparency therefore information is at the root of the crisis as people simply don't know what the value of anything is any more.

This is along the lines of my own thoughts. The subprime crisis was the trigger where people realised they had no idea what everything was worth and it spiralled from there.

As information or lack thereof is at the heart of this crisis, I believe that the continual injections of cash and purchase of assets is only prolonging the issue. The system is relatively stable now so the key is radical transparency. The banks, financial institutions, hedge funds etc. need to open their books to 3rd parties (trusted 3rd parties) in order for the information to be found.

Once that is done, investors will regain confidence in their ability to value companies and assets. At the moment they can't and so won't risk their money.

This will probably require Government legislation to force the opening but it has to happen. The more public the information is made the fast this whole crisis will be solved and then everyone can move onto fixing the damange being done to the real economy (you know the part that creates real wealth and improved living standards?).

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