04.16.09
Secret Banking Sham
I just bought these great glasses. I put them on and everyone says “My, you look thinner.” Now, when I go into banks tellers smile at me. When I go into restaurants, waitresses smile at me. When I go into gymnasiums people nod approvingly. I walked into my doctor’s office wearing them. They took my weight and blood pressure. The doctor looked at the numbers and said “Well, I wouldn’t really worry about these numbers because obviously they are irrellevant to you. I can see that you aren’t fat.” These are really great glasses. And, in fact, they are so good that they make me want to get out more. Who knows maybe I will eventually come to resemble the new me everyone sees. Or perhaps not.
The magic glasses parable came to me as I was contemplating the article at the Economist (link above) advocating more transparency and less regulation. At first I saw it differently; but I think it is useful to consider the possiblity that our society is simultaneously embracing more government involvement and less transparency in the world of finance. That, in fact, if banks get to magically make risk go away by using less conservative and more abstract valuation models they may be donning the kind of magic glasses we talked about; that may make them look better in the short term. But in the longer term it is bound to make them less stable when downturns occur.
I will be the first to advocate for temporary government involvement because it is better than collapse - which seems the only other alternative. But long term governmental direct participation industry, commerce, and allocation of resources always tempts corruption. Lack of transparency aids in hiding corruption. The only answer is free markets and sound, well enforced regulation. The question for government is not whether it ought to govern (as the whole of the Republican party apparatus appeared to advocate for some time) but how?
The answer is “well.” And the means to that is by discussing policy openly. While I just happen to agree with most of Obama’s policies, it is not his policies that I find so deliciously refreshing as it is his style of governance. He welcomes discussion and is open to dissent. He proposes key principles upon which we can agree and he lets us focus on working out the details in open discussion. This kind of discussion is illuminated by transparency. Transparency - the free and open flow of all information crucial to making a decision - is of vital importance to the proper function of markets and democratic governments. Systematic behaviors that stifle transparency or promote bad judgement in light of good information ought to be considered corrosive to the very liberal principles upon which these institutions are built.