Trust through transparency
The US government has just had to bail out the financial services industry with at least two hundred billion dollars, creating a liability for the beleaguered US taxpayer (who has already been lumbered with the debts of the Iraq war and the associated public larceny, but that’s another rant) of three trillion dollars.
The meltdown in financial services arose because, fundamentally, the industry had been creating opacity. It’s what it does; and eventually, things go wrong. In this case, the opacity was created by securitisation of sub-prime mortgages. Those who invested in this securitised (wrong word, by the way: there was no security in the process) sub-prime debt were deprived of the transparency they needed to make a fair assessment of the risk. They couldn’t see that they had bought loans given at impossible income multiples to people to whom, frankly, no sane financier would ever lend. If sub-prime investors (who were mostly big institutions) had been able to see what they were getting into, they wouldn’t have bought the debt, and if their shareholders had been able to see what they were up to, they would have kicked the miscreants out long before the balance sheet became so broken.
Are we ever going to be able to trust financial capitalism again? Many of us have been burned twice in less than a decade – first with dot.coms, now with the securitised sub-primes. We put our money in managed pensions and savings, and the so-called experts get it wrong. Who could blame us for putting the money under a pillow? Except that, when we do that, our governments rob us by devaluation.
We need an efficient, trustworthy, reliable and well-capitalised financial services system; we need efficient capital markets to support emerging industries; capitalism needs to rebuild trust. I maintain that transparency is the only way trust can be rebuilt, and that today, technology can bring transparency to everything that capitalism does. It’s time for capitalism to embrace transparency and for us, as taxpayers, borrowers and investors, to demand transparency in everything that banks, governments and corporations do with our money.