From the blog Vox comes this posting by Marco Pagano, Professor of Economics, University of Naples on simplified information for investors yesterday, catastrophic uncertainty today:
By simplifying the information they transmitted to investors, banks managed to expand the market for the structured bonds that they issued. But this has also led to a catastrophic uncertainty that paralyses markets and even affects policy choices. The choice of opacity by issuers and rating companies has been socially harmful and should have been constrained much more tightly by regulation. Until today, though, few believed that transparency could be worth as much as 5% of US GDP.
In other words, issuers didn't want to give investors complex information:
by simplifying the information transmitted to the market, banks managed to expand the market for the structured bonds that they issued: providing detailed and complex information would have kept away from the market many unsophisticated investors, who would have been at a disadvantage compared to those capable of processing this information.
The result is market crushing uncertainty. And so why do some want to go back to the old days of cooking the books and a regulatory system that promotes less accountability?
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