We need to add more transparency to the derivatives market so that people can better assess the risks taken on by other parties. The goal should be a regulatory structure that is as lightweight as possible but where transparency is maximized. This will take some of the burden off of the government to fix everything and allow the free market to work more efficiently without repeating what we saw in the latest crisis.
While transparency is a must. Market speak and spin doctors can still distort the message. An example, of transparency is AIG's 6/30/08 10Q. A financial statement disclosure for credit default swaps indicated that the Monte Carlo method was used in conjuction with the BET simiulator to value the swaps. While it is transparent this disclosure certainly was not picked on by investors. To me this says they gambled on the value.
While transparency is a must. Market speak and spin doctors can still distort the message. An example, of transparency is AIG's 6/30/08 10Q. A financial statement disclosure for credit default swaps indicated that the Monte Carlo method was used in conjuction with the BET simiulator to value the swaps. While it is transparent this disclosure certainly was not picked on by investors. To me this says they gambled on the value.