Complexity and Opacity
The theory of competitive market efficiency assumes that all players have equal access to information. Where one player (or set of players) has better information, those players are able to extract excess profits from the marketplace without providing equivalent value in goods and services.
Since money is fungible (ie all money is the same), the high and increasing profits of the Financial Sector are surprising. Any quick review of recent financial history shows how that trick was accomplished: increasing complexity and opacity in financial instruments.
Compare the 30 year fixed mortgage issued and then held by a local bank in 1975, with the mortgage issued by issued by the local bank in 2006 and then packaged as an Asset Backed Security (ABS), which was then incorporated into a Collateralized Debt Obligation (CDO) , which was then used for the creation of a synthetic CDO, which then became part of a CDO Squared.
Complexity and opacity has exploded, giving unfair one sided advantaged to the manufacturers of these complex devices. Further, these modern hyper-complex securities markets have in the main been “private transactions” without any public visibility of the sort that public markets bring to the stock market.
In their race to screw the outsiders, the Financial sector has gone so overboard that they even end up screwing themselves! Indeed complexity and opacity BETWEEN major players was a key cause of the near collapse of the system post-Lehman Bros. Nobody knew who owed what to whom. The AIG Credit Default Swaps (CDS) debacle was a classic example of the effects of systemic opacity.
The current inability for holders of mortgage banker debt to do write-downs of principal for “underwater” mortgages EVEN WHEN THE LENDERS WANT TO is another negative artifact of the proliferation of complexity and opacity, that hurts EVERYBODY, except for a few key players (the mortgage servicers) in the Financial sector.
Real Transparency
It has often been said that “sunlight is the best disinfectant”. And indeed countless “transparent process reforms” have been enacted over the years, with little to show for them.
We have concluded the essence of Real Transparency must be the ability to “follow the money” and, as such, our reform will focus on financial transparency above all else.
The Free Money system will provide this high degree of transparency with respect to Legal Entities. All accounts and all transactions of Legal Entities will be visible to everyone. That includes all Account transactions, and all transactions in securities. They will be “world viewable”. With respect to securities transactions, all transactions will be posted with the buyer, the seller, the amount, the price and the full legal documentation available to all.
Finance, in particular, but Big Business as well, have benefited enormously from the information asymmetry between the individual and the Big Boys in the current world order. Real Transparency may be the single most effective policy we can put in place to make sure that the economy under FreeMoney becomes a relatively level playing field.
Practicing Real Transparency
EP will practice the “Real Transparency” standard that we preach for FreeMoney. ALL receipts and expenditures by EP or its affiliates will be viewable online, in real time. In essence the “check register” of the party’s bank account will be viewable.