Former US Comptroller General Joins Marketcore

 

Former US Comptroller General Joins Marketcore

Greenwich, Conn., Oct. 17, 2013/PRNewswire/ 

Marketcore.com, Inc. is proud to announce and welcome the Honorable David M Walker, former Comptroller General of the United States and CEO of the U.S. Government Accountability Office (1998 -2008) as Honorary Chairman and Senior Advisor.

Marketcore is a Connecticut based intellectual property and technology development company. The Company has been granted nine patents and related trademarks. Marketcore’s proprietary systems are designed to enhance the functioning of financial and insurance markets for the benefit of all participants.

“I decided to accept this role at Marketcore because of its innovative and patented intellectual property (IP). It has the ability to transform how markets work for the benefit of all Americans,” stated Mr. Walker. “Marketcore’s IP can help improve transparency, enhance efficiency, enable fair value reporting, improve investor fairness and confidence, and facilitate more informed trading. It can be used in connection with a wide range of investments, exchanges for financial products (e.g., bonds, mortgages and their derivatives) and insurance, (e.g., addressing flood and other environmental risks) and numerous other risk management areas. Given the current state of affairs, Marketcore’s time has come.”

“We are very pleased that Dave Walker has decided to join the Marketcore team,” said Michael Erlanger, Managing Principal of Marketcore. “He has a national and international reputation for truth, transparency, transformation and accountability. Dave will contribute actively to the rollout of Marketcore’s systems, helping to make risks more apparent to market participants while encouraging the development and broadening of our financial markets.”

About Marketcore®
Founded in 2000, Marketcore (www.marketcore.com) is a privately held company based in Greenwich, CT. The Company’s proprietary tools deliver operating efficiencies, liquidity, value enhancement and complex risk assessment for the financial services and insurance industries. Their work has been cited by a number of leading risk managers, regulatory interests and others, including the Library of Congress Congressional Research Service in a “CRS Report to Congress: Financing Recovery from Large-Scale Natural Disasters, November 18, 2008.” Marketcore’s inventive methods are transforming the processes that surround financial market exchange use, risk ratings and information delivery.

To learn more, please visit http://www.marketcore.com

CONTACT: Constance Erlanger, Marketcore.com, Inc.,
203-542-7211, cerlanger@marketcore.com

To download a PDF of this press release, please click here.

Posted in 1 Advisory, 2 Press, 3 Opinion, Current Events, Financial Crisis, FINRA, License-related, Marketcore News, NAIC, NCOIL, SEC, Uncategorized, US Treasury Dept. | Tagged , , ,

“It’s Time to Change the World” – NAIC Director of Regulatory Services and Director of The Center for Insurance Policy and Research Picks Marketcore

[Excerpted from The Regulator® newsletter of the Insurance Regulatory Examiners Society, Winter 2013]
 

It’s Time to Change the World
by Eric C. Nordman

Since I assumed another leadership role at the beginning of 2012, I have had some amazing things occur. My new title as director of the NAIC Center for Insurance Policy and Research (CIPR) has given me the opportunity to interact with some incredible thought leaders. The white paper Financing Home Ownership, Origins and Evolution of Mortgage Securitization: Public Policy, Financial Innovations and Crises published by the CIPR in August has now been downloaded more than 25,000 times—a record, I’m told. What’s all the fuss?

Background Information

One of the vexing problems of the recent economic downturn was the performance of the real estate markets. This is important to insurance regulators, as insurers are major investors in real estate, both directly through ownership of their facilities and indirectly as investors. Insurers’ investments come in the form of direct lending, but more commonly as investments in both residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS). The trouble with investing in either RMBS or CMBS is that it is difficult for an investor to know what the value of the RMBS or CMBS is at any point in time. This difficulty arises because the information needed to evaluate the performance of an RMBS or a CMBS properly is opaque. It is not easily discoverable by the investor.

This was a problem during the economic downturn because nobody could establish a reliable value of RMBS or CMBS securities given the lack of timely information about the performance of the underlying mortgages that made up the package of loans that had been securitized. Casual assumptions that housing values always went up proved inaccurate. Lack of information about creditworthiness of borrowers whose loans were in the packages and lack of information about the lenders’ underwriting standards made it impossible to know with any level of certainty what a particular RMBS or CMBS was worth.

Before the economic downturn, there was a robust private market for guaranteeing RMBS. The leverage in the mortgage market surged during the boom years (2001-2007). At the time, the mortgage debt outstanding was greater than any other lending sector. The rate of growth and the amount of outstanding loans were both rapidly increasing. Residential mortgage debt outstanding grew at around 12 percent per year from 2000 to 2007, when it peaked at $11.2 trillion. At the time, this was an amount greater than the total outstanding of the Treasury, non-financial corporate bonds, and credit card debt combined.

The culprit seemed to be the subprime mortgages that lowered lenders’ underwriting standards, making it easier for people to borrow. Unfortunately, the ability to borrow did not coincide with the ability and willingness to repay the loan. Before the emergence and proliferation of subprime mortgages, the housing finance system was served by the government sponsored enterprises (Fannie Mae and Freddie Mac), a few mortgage insurers, and large lending institutions. These entities knew and understood each other’s business practices. Collectively, the system had developed accepted underwriting standards that could effectively eliminate most unqualified borrowers and a working model for setting risk-based premiums for guaranteeing mortgage credit losses.

“Before the introduction of subprime securitization, things were working pretty well because all the market participants knew and understood each other.”

In that pre-subprime environment, securitization primarily involved deals backed by conforming prime loans. The consistent quality of government agency RMBS collateral pools allowed a good deal of certainty in predicting future cash flows. Investors only had to worry about prepayment risk and reinvestment risk. In other words, before the introduction of subprime securitization, things were working pretty well because all the market participants knew and understood each other.

The CIPR White Paper

The white paper Financing Home Ownership, Origins and Evolution of Mortgage Securitization: Public Policy, Financial Innovations and Crises offers a range of public policy options for insurance regulators to consider. The range of options was suggested by nationally recognized thought leaders who were invited to contribute to the white paper. Three of these authors were also invited to speak at the recent NAIC Fall Meeting at an invitation-only CIPR public policy luncheon. Edward L. Toy, director of the NAIC Capital Markets Bureau, is known as a capital markets expert and innovator and is responsible for the Capital Markets Special Reports and a Capital Markets Daily Newsletter for regulators. At the luncheon, Mr. Toy focused on recent modeling efforts for both RMBS and CMBS. The NAIC modeling provides insurance regulators with a world-class facility for precise modeling of both RMBS and CMBS. These modeled results are the envy of other financial services regulators who do not have the granular information available to them that insurance regulators have available today.

The other presenters offered suggestions on how to build a better mousetrap. Richard Field is head of TYI, LLC, a consulting and technology firm concentrating on the future of finance. He is a contributor to a variety of publications, including Fortune Magazine, The Wall Street Journal, The New York Times, Financial Times, and Bloomberg. Mr. Field described how his “Brown Paper Bag Challenge” looked at “observable event reporting” in RMBS. Mr. Field said the RBMS markets do not work because they lack the basic source of investor protection, namely transparency. Mr. Field also observed that insurance regulators are in a unique position to influence the broader RMBS markets because insurance regulators are the only regulators representing investors; in this case, insurers that own $123.2 billion worth of RMBS and $161.9 billion worth of CMBS. The numbers reported by the NAIC Capital Markets Bureau are the holdings in modeled securities. They do not include agency paper and a small amount of non-agency that could not be modeled.

“Everyone agrees that the RMBS markets are in disarray.”

Mr. Field’s suggested solution to protect insurer investments is for regulators to use capital requirements to encourage the insurers to invest in new RMBS issues from entities providing credible investor protections. Mr. Field defines credible investor protection as timely, observable, event-based disclosure so that insurers and other investors can independently assess the creditworthiness of the underlying collateral for each structured finance product.

David M. Rowe is founder and president of David M. Rowe Risk Advisory, a risk management consulting firm focused on risk management support for boards and senior executives of financial institutions (primarily banks and investment banks), with particular focus on capital market activities. Dr. Rowe is a frequent contributor to Risk magazine, where he has written the monthly Risk Analysis column since late 1999. Dr. Rowe proposed countering housing finance complexity with “Market-Driven Transparency.”

Dr. Rowe is a firm believer in the writings of Charles L. Schultz, a senior fellow emeritus in the Economic Studies Program at the Brookings Institution. Schultz wrote in his book The Public Use of Private Interest that, “According to conventional wisdom, government may intervene when private markets fail to provide goods and services that society values.” He maintains, and I agree, that the private placement market for RMBS is badly broken and in need of repair. The RMBS market is an important one for insurers, as it helps them diversify their asset base. It thereby becomes important to insurance regulators charged with overseeing a healthy and competitive insurance marketplace.

Dr. Rowe has identified a risk predictive technology that he called a “foundational technology for creating healthy and transparent markets.” It deploys inducements to market participants to encourage them to update continuously the underlying mortgage-related data needed to value the RMBS. Using a device known as a Transaction Credits™, RMBS aggregators are motivated to disclose pertinent information regarding mortgage performance because they receive an economic benefit from doing so. The Transaction Credit™ provides aggregators and investors with their choice of incentives to induce them to use the transaction platform. The participant can choose a reduced fee on future transactions or gain access to market information to improve sales and market performance.

This methodology need not remain a vision. At the CIPR Luncheon, Dr. Rowe’s speech went much further than the way he expressed his thinking in the white paper. He declared that implementation of the “only innovation I have seen that promises to revive the securitized mortgage market and to do so without the benefits of government guarantees” should be made a “national priority.”

He was talking about resolving as much as roughly $5.35 trillion in government insured debt that the government says it wants to privatize. This is the nation’s largest single risk exposure, fully one third of the public and private debt. This “national priority” status is even more the case, as it also applies to the world’s largest credit product, roughly $700 trillion in credit derivatives, Credit Default Swaps (i.e. the US is generally thought to have about a 40% market share of financial markets).

What is needed to supplement the LEI is to develop a transaction platform within which RMBS can be traded and tracked.

Implementing Change

Everyone agrees that the RMBS markets are in disarray. Loans are difficult to obtain. Only the government sponsored entities seem to be willing to guarantee mortgage loans and then only prime loans for highly qualified borrowers. What is in question is what to do about the market and its implications for insurers’ investment opportunities in RMBS. Given that investments in these markets are a key piece of the investment portfolio of insurers, it is important to them, to consumers, and to insurance regulators that these markets become more functional and reliable.

Immediately after the global financial crisis, politicians were calling for greater transparency, enhanced disclosure, and more regulation as solutions to address the credit crisis. As Dr. Rowe observed in his contribution to the white paper, there was plenty of blame to go around. The solution for many was the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. One of the features of the Dodd-Frank Act was the chartering of the Financial Stability Oversight Council (FSOC) and its research arm the Office of Financial Research (OFR). Together, they were tasked with identifying and documenting risks to the US financial system, promoting market discipline, collecting information needed to assess risks to the US financial system, and coordinating regulatory oversight and information sharing for the financial sector. The housing markets and the related RMBS markets are but one piece of a broader puzzle. So far, the most visible work product of the OFR is creation of the Legal Entity Identifier (LEI). While this is an important first step to a common platform for risk transfers, it is by no means the end. The LEI tells us who is doing something but not what they are doing.

What is needed to supplement the LEI is to develop a transaction platform within which RMBS can be traded and tracked. Accomplishing the task will require a strategic alliance of buyers, regulators, and the general public. The major sell-side firms will not be motivated to develop a solution, as they fear it will reduce what they perceive as a competitive advantage. What sellers fail to realize is that what they lose in narrower margins will be more than made up in volume as the RMBS markets restart and trust is restored.

The transaction platform should start with the lender granting a mortgage. Participating lenders can make information available about their loan underwriting standards, the accuracy of real estate appraisals, and key performance indicators after the mortgage is issued. Indicators might include receipt of a payment, failure of the borrower to make a timely payment, delinquency milestones, changes to the mortgage loan documents, and other agreed upon factors. Aggregators can assemble mortgage pack- ages and tie the information to each loan within a package. Investors will receive access to the transparent mortgage- related information when they purchase an RMBS. If the investor happens to be an insurer, a regulatory portal will give insurance financial regulators access to current transparent information pertinent to the valuation of the RMBS asset. The multiple eyes of the insurance regulators would assist with keeping all parties honest and provide a valuable risk valuation tool for all financial regulators.

An inventor named Michael Erlanger is the owner of the intellectual property mentioned by Dr. Rowe. Going beyond the Transaction Credit™, Mr. Erlanger has outlined all the businesses processes necessary to add transparency and restore the RMBS markets for the benefit of insurers and other investors. His company, Marketcore, should be included as part of the solution. The business processes described on the Marketcore website (www.marketcore.com) involve the electronic “trading” of risk-detailing disclosures in exchange for more efficient, better-functioning financial markets. The transaction platform would be both optional and voluntary. His recommended processes go beyond the RMBS markets and would potentially cover all of structured finance.

The suggested business process can quantify and reduce risk to help restore financial markets to good health. The reason this invention works for capital markets products like RMBS is twofold. First, if an electronic system is developed to enable the transactions and capture the transaction data, the administrative costs to all parties to the transaction would be reduced over the current business processes. Second, there is always a cost of risk associated with a financial product that is related to uncertainty. The greater the uncertainty, the greater the cost of the element of the capital markets product associated with the transfer of that risk between the parties. If the uncertainty surrounding the risk is reduced, then the cost of risk is reduced and the overall cost of the product is reduced. The Marketcore invention is designed to reduce uncertainty and enable a more complete identification of risk in financial products. All parties to the transaction benefit from the reduced transaction costs.

As an important first step, insurance regulators are in a position to lead. They can be the catalyst for convening the necessary strategic alliance of investors, regulators, and the public. It’s time to change the world—or at least this part of it.

Eric Nordman is the director of the NAIC’s Center for Insurance Policy & Research. He is a long time member of IRES and currently serves on the board of directors.

To download a PDF of this excerpt from the newsletter, please click here.

Posted in 1 Advisory, 2 Press, 3 Opinion, Current Events, Financial Crisis, Marketcore News, NAIC

Marketcore methods named in CRS report

Marketcore inventive methods again named in a CRS report…
for “facilitat[ing] valuations for complex risk transfers”

February 6, 2013

In November 2012, at an annual meeting of the National Association of Insurance Commissioners, Center for Insurance Policy Research (NAIC/CIRP), regulators and stakeholder groups with an interest in catastrophe risk financing explored new standards for transparency, compliance, and accountability with respect to two kinds of large scale disasters: environmental (i.e., catastrophe risk) and financial (i.e., residential mortgage back securitization). One speaker at the meeting, David M. Rowe, concluded that in order to efficiently transfer risk to capital markets via the issuance of financial instruments, two obstacles must be overcome: (1) a computer system challenge that involves data storage, communication issues, and computer processing analytics and (2) finding ways to make risk exchanges and transaction platforms more efficient. Eric Nordman, director of Research for the NAIC, and coordinator of the study released at the 2012 NAIC/CIRP meeting, suggested that the two risk management challenges identified by David M. Rowe could be addressed through regulatory changes in the way insurance companies invest in certain financial instruments, including residential mortgage-backed securities.

During the NAIC/CIRP panel discussion, Michael Erlanger, managing principal of Marketcore, a company that developed an electronic system architecture for aggregating risk elements in a way that facilitates valuations for complex risk transfers, stated that legislation introduced in previous Congresses, the Homeowners Defense Act, had, among other things, called for a change in regulatory structures that deliver consistent micro-to-macro risk-detailing views in near real time, assuring transparency in the market for catastrophe risk, including flood risk. He pointed out that the act called for the creation of a National Catastrophe Risk Consortium to (1) encourage data capture that leads to catastrophe risk differentiation and (2) expand the ability of private-sector financial and capital market firms and state residual property insurance pools to underwrite and bear the risk of an extreme event, such as a catastrophic flood event.

The Consortium, Erlanger stated, could, in theory, establish a holistic risk assessment framework that results in ever more granular market information induced by financial and strategic incentives for risk disclosure by all market participants. The standardized “granular risk data” at the contract level could be aggregated and the risk transferred via the Consortium’s electronic platform to investors in the capital markets. This structure arguably would induce transparency, provide market liquidity for catastrophe risk financing, and track all changes in the underlying contracts (e.g., flood policies) in real time.

[Excerpted from page 30]

73 P.L. 112-141; Sect. 100232(b).
74 See, Comments of David M. Rowe, President, David M. Rowe Risk Advisory, before the NAIC/CIRP Luncheon Panel on Financing Home Ownership, November 30, 2012, located at:
http://www.marketcore.com/media/Marketcore-David_Rowe-Press_Release.pdf
75 See Eric Nordman, Financing Home Ownership: Origins and Evolution of Mortgage Securitization – Public Policy, Financial Innovations and Crises, located at:
http://www.naic.org/documents/cipr_120812_white_paper_financing_home_ownership.pdf
76 H.R. 2555 (111th Congress): Homeowners’ Defense Act of 2010.
 

Click here to download the full Congressional Research Service report in PDF format

Posted in 1 Advisory, 2 Press, 3 Opinion, Current Events, Financial Crisis, Marketcore News, NAIC

Lead risk manager cites Marketcore methods as “national priority” for RMBS

Remarks by David M. Rowe at the NAIC/CIPR Luncheon Panel on Financing Home Ownership

FAIRFIELD, Conn., November 30, 2012

Good morning ladies and gentlemen. I am delighted to be part of this discussion and I would like to thank Eric Nordman and the Center for Insurance Policy Research for this opportunity.

To place my remarks in context, I would like to draw attention to the central proposition of a book entitled “The Public Use of Private Interest.” This book was written many years ago by Charles L. Schultze, currently a senior fellow emeritus in the Economic Studies Program at the Brookings Institution. I think the relevance of the book will be clear if I quote from the description on the back cover which reads as follows:

According to conventional wisdom, government may intervene when private markets fail to provide goods and services that society values. This view has led to the passage of much legislation and the creation of a host of agencies that have attempted, by exquisitely detailed regulations, to compel legislatively defined behavior in a broad range of activities affecting society as a whole. …Far from achieving the goals of the legislators and regulators, these efforts have been largely ineffective; worse, they have spawned endless litigation and countless administrative proceedings as the individuals and firms on whom the regulations fall seek to avoid, or at lest soften, their impact. The result has been long delays in determining whether government programs work at all, thwarting of agreed-upon societal aims, and deep skepticism about the power of government to make any difference.

Strangely enough in a nation that since its inception has valued both the means and the ends of the private market system, the United States has rarely tried to harness private interests to public goals. Whenever private markets fail to produce some desired good or service (or fail to deter undesirable activity), the remedies proposed have hardly ever involved creating a system of incentives similar to those of the market place so as to make private choice consonant with public virtue.

In this (book) Charles L. Schultze examines the sources of this paradox. He outlines a plan for government intervention that would turn away from the direct “command and control” regulating techniques of the past and rely instead on market-like incentives to encourage people indirectly to take publicly desired actions.

I feel sure that the continuing relevance of this book’s central thesis cannot escape the notice of anyone who has followed our prolonged national debate about financial regulation since the traumatic events of September 2008. It is quite amazing to realize that this book was written 36 years ago given that it so perfectly describes our current situation.

With this as background, let me say that I believe reviving the securitized residential mortgage market involves two fundamentally distinct challenges. I refer to these as a) the Computer System Challenge (within which I include data storage and communication issues as well as computer processing analytics) and b) the Social System Challenge. To date, discussions on how to revive the securitized residential mortgage market have focused heavily on the Computer System Challenge combined with an assumption of a command and control approach to forcing a pre-defined solution on the industry. Richard Field states the case very well with his analogy of the brown paper bag versus the clear plastic bag. His argument that daily, or even real-time, updates are essential and can be supported with today’s technology is compelling. This approach may well be necessary to jump-start the wider availability of loan-level event-driven information for existing RMBS securities. In the long run, however, I think it will leave such information vulnerable to passive-aggressive resistance on the part of sell-side firms. The level of detail and timeliness will be the subject of continued wrangling, with providers seeking to contain cost by limiting the level of detail and reducing the frequency of the updates. Bureaucratic rules of engagement and the requirement for careful deliberation by regulators will slow the process of adding useful new information to such a database as products evolve in the future.

I believe the work of Michael Erlanger, and his firm Marketcore, offer a better approach in line with Charles Schultze’s concept of the public use of private interest. In effect this approach involves using the enforcement power of the state not, or at least not primarily, to impose detailed disclosure requirements. Rather it would use the power of regulation to force a reform in market structure that creates positive rewards for disclosure. It also would convert the resulting information into a valuable private asset with a strong constituency supporting its continuous expansion and improvement. Market forces would impose a powerful discipline to maintain the accuracy and timeliness of reporting by withdrawing the rewards from those whose disclosures fall short of expectations. By tracking any such shortcomings, the value of securities affected by them would quickly be discounted in line with increasing uncertainty about the performance of the underlying collateral.

The central concept in the Marketcore innovation is generation of a Transaction Credit in exchange for trade volume in the restructured market. This Credit could be used either for discounts on future trades or for discounted access to the detailed data such a system would generate. Furthermore, the very use pattern of the Transaction Credit would provide valuable insight to regulators and traders as to which securities are receiving increased market attention. In effect, the Transaction Credit becomes a means of driving transaction volume and associated liquidity to a new exchange by leveraging the most valuable thing the new exchange provides, namely the reliable, timely and detailed information it creates.

The problem is one of making the leap from an existing stable equilibrium to another, more socially desirable, stable equilibrium. Such a transition cannot be made easily or smoothly because it requires what has been referred to in developing a successful start-up business as “crossing the chasm.” Virtually everyone agrees that the central problem underlying the collapse of the sub-prime mortgage market was lack of transparency. The problem is that this lack of transparency works to the advantage of those, mostly sell-side firms, who enjoy an asymmetric information advantage. This allows market makers to widen their spreads and pad their profits. Any threat to this advantage will be fought with all the influence the industry’s deep pockets can muster.

Ultimately, crossing the chasm will require several powerful players to join forces.

  • Buy-side firms will need to commit to utilizing a more transparent market place if it can be created.
  • One or more technology firms will need to commit to building out Version 1.0 of the underlying technology.
  • A second or third tier sell-side firm is needed who’s management believes the higher profits from the higher trading volumes created by being in on the ground floor of a new market will outweigh any losses they may suffer from narrower bid/offer spreads on existing business.
  • Finally, capital investors will be needed to underwrite the initial development cost in exchange for the powerful earning potential from fees for the valuable information that such a market will produce. Of course, these capital providers could overlap with the buy-side, sell-side and technology participants.

Of course, government has a crucial role in creating such a socially beneficial market. First and foremost it must avoid capture by existing vested interests who will seek to strangle such an innovation at birth. This means eliminating, or not creating, laws that obstruct its feasibility. Beyond that, government can actively encourage or even require that such a market be used by regulated industries who wish to invest in certain highly complex securities.

In summary, a major systemic risk haunts the US economy. Many financial institutions have significant “frozen” assets in securitized mortgage obligations that would be virtually impossible to liquidate in large volumes at anything close to current book values. If such institutions were faced with sudden cash outflows, this lack of liquidity could present a serious threat to their survival. In addition, relying almost exclusively on government guarantees to revive the residential funding market is highly questionable in light of the many other serious pressures on government finances.

Marketcore’s proprietary methods offer the only structural innovation I have seen that promises to revive the securitized residential mortgage market and to do so WITHOUT the need for government guarantees. These methods create positive incentives for voluntary information disclosure. The transparency such disclosures create would close the often low- to mid-double digit bid/offer spreads that are paralyzing the market. Particularly in light of the well publicized strains on Federal Government finances, active steps toward implementing these innovative methods should be a national priority.

CONTACT:
Constance Erlanger
Marketcore, Inc.
+1-203-254-6057
cerlanger@marketcore.com

Click here to download PDF

To listen to three audio recordings of the CIPR panel discussion speeches, click here:
Audio 1
Audio 2
Audio 3

Posted in 2 Press, Current Events, Financial Crisis, NAIC, Uncategorized

CIPR White Paper: Marketcore profitable counter to information asymmetries

Leading Financial Regulator’s White Paper Recognizes New Marketcore Technology
Resolution of mortgage market issues and profitable “counter” to information asymmetry described

FAIRFIELD, Conn., Aug. 14, 2012 / PRNewswire

Marketcore, Inc. announced that the National Association of Insurance Commissioners, through its Center for Insurance Policy and Research (CIPR), yesterday published a White Paper citing the inventive methods of Marketcore as a solution to address “risk assessment of complex financial products…[and] to counter the information asymmetry advantage of deal originators.” The authors acknowledged Marketcore’s Transaction Credits™ as “the tool used to provide incentives to originators, aggregators and investors to encourage them to use the system and to report events related to the value of underlying mortgages.” The White Paper suggests a private sector solution where, “an alliance of buyers, regulators and the general public can insist on greater transparency and effective disclosure of sufficient information to allow residential mortgaged-backed securities investors and regulators to have greater confidence in the market.”

David M. Rowe, the noted risk manager and journalist, was a contributing author to the CIPR White Paper. He first encountered the company’s invention while a participant in the Office of Financial Research Discussion Group and subsequently described it as a tool for creating “Market-driven Transparency.” He commented, “While considerable thought and legislative effort have been devoted to revising the regulatory framework, all such initiatives inevitably encounter passive resistance on the part of the industry. I believe these efforts need to be supplemented by a system of positive private incentives at all levels, from mortgage borrowers to institutional investors, to reward continuing disclosure of the details necessary for effective security analysis. The official credit rating agencies clearly failed to warn investors of the potential dangers inherent in some segments of the securitized mortgage market. This leaves them in no position to be the instrument of its revival. Only a massive infusion of transparency driven by positive economic incentives, which Marketcore’s invention induces, will move us beyond the current reliance on government guarantees to create the credit flows necessary for a robust recovery in the housing market.”

Byron Vielehr, president of Dun & Bradstreet, NA and a member of Marketcore’s board of directors, added, “The Marketcore IP has the potential to radically improve the transparency and efficiency of many financial instruments and markets. It also has the benefit of being relatively easy to implement at scale and contains embedded inducements for market participants.”

Michael Erlanger, Managing Principal of Marketcore, said, “Our company’s inventions, memorialized in a suite of issued patents and pending filings, are just now being acknowledged as a uniquely American innovation, capable of resolving the systemic issues that have undermined confidence in financial markets. Importantly, ours is a method that involves all market participants in an encompassing approach based on disclosure of critical financial information. Information asymmetries helped create this on-going global financial crisis, and we believe that their elimination is an essential element in making markets more efficient. Marketcore’s innovations foster a system in which all participants profit from voluntarily making risk-detailing disclosures that increase asset values and facilitate market functions. In recent weeks our work has received national and international citations for a range of applications from systemic risk detection to credit market functions and now to valuations of complex risk instruments, particularly mortgage-backed securities. We are excited to be part of a forward- looking process that aligns all finance and risk management with 21st century technology.”

About Marketcore: Founded in 2000, Marketcore is a privately held company based in Connecticut. The Company focuses on creating tools with which to improve operating efficiencies, liquidity, value enhancement and risk assessment for the financial services industry.

To learn more, please visit http://www.marketcore.com.

Safe Harbor Statement

This release includes forward-looking statements on our current expectations and projections about future events. In some cases forward-looking statements can be identified by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based upon current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties, many of which are difficult to predict and include statements relating to our invention and proprietary technology, the importance to markets of eliminating information asymmetries, the impact of CIPR White Paper on the company and the ability of Marketcore’s methods to be the start of a cure in which everyone participates.

The forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth or implied by any forward-looking statements. Important factors that could cause actual results to differ materially from those reflected in our forward-looking statements include, among others, our ability to implement our business plan and marketing strategy for our invention and proprietary technology, market acceptance of our solution to information asymmetries, and our ability to raise sufficient capital to fund our operations effectively. The information in this release is provided only as of the date of this release, and we undertake no obligation to update any forward-looking statements contained in this release based on new information, future events, or otherwise, except as required by law.

CONTACT:
Constance Erlanger
Marketcore, Inc.
+1-203-254-6057
cerlanger@marketcore.com

Click here to download this press release in PDF form.

Posted in 2 Press, Current Events, Financial Crisis, NAIC, Uncategorized

Insurance industry White Paper identifies Marketcore as solution for valuing RMBS

Financing Home Ownership
From Land Grants to Mortgage-Backed Securities
Public Policy, Financial Innovations and Crises

In the view of Eric Nordman, Editor:

Concluding Remarks

“David M. Rowe discusses the complexity and challenges of risk assessment of complex financial products, including RMBS. The heterogeneity of risk and performance in the underlying assets further complicates the picture. Thus, he recommends greater uniformity among underlying financial instruments to improve homogeneity. He observes that sellers have no interest in being more transparent as they perceive a competitive advantage created by information asymmetries. Mr. Rowe correctly observes that technology is now available that is capable of handling the volume of information needed to counter the information asymmetry advantage of deal originators. However, the technology will only be developed if there is a call to arms by ‘an alliance of buyers, regulators and the general public.’ He suggests market-driven transparency as the answer. Mr. Rowe mentions an intellectual property company, Marketcore, as a thought leader in this area.

“Mr. Rowe’s vision would include an electronic transaction system to capture initial RMBS transactions along with any subsequent structural details. He favors a private sector, rather than government solution and his section identifies important partners necessary to build such a system. He encourages the use of Marketcore’s Transaction Credits™ model to encourage system use by market participants. This key feature would be ‘the tool used to provide incentives to originators, aggregators and investors to encourage them to use the system and to report events related to the value of underlying mortgages.’ If a regulator portal were added, then the multiple eyes of state insurance regulators would assist with keeping all parties honest and provide a valuable risk valuation tool for all financial regulators.”

“…Hopefully this paper has presented some possibilities worth pursuing to reach a workable solution that improves market performance through increased standardization of financial instruments, improved transparency and more meaningful, and perhaps more timely, disclosure of information to investors, regulators and the general public. True competition works best when information asymmetries are minimized or eliminated. Transparency to regulators is a must.”

In the view of David M. Rowe, author of The U.S. Residential Finance Market – The Road to Recovery:

Market-driven Transparency

“How could a detailed, up-to-date and readily accessible database with all relevant structural details of the underlying collateral become a standard feature of the markets for complex financial products? As Adam Smith would have said, we will not accomplish this by appealing to “the benevolence of the butcher, the brewer” or the investment banker. The dramatic improvement in transparency that technology now makes possible will only be fully realized and effectively maintained through a combination of regulatory coercion and appeals to self- interest.

“In additional to regulatory pressure, establishing such a system will require several things. The first is a well-heeled insurgent organization with little or no stake in the current market arrangements to underwrite the technical development of such a system. Second it will require participation commitments from a core group of buy-side firms who would stand to benefit from the greater transparency, lower risk and sharper pricing that such a system would create. Finally, it will require commitment from some aspiring second-tier sell-side firms who would stand to benefit from a first mover advantage by being an early participant in such a transformative arrangement and the big increases in trading volume it would create. A major technology firm also must be involved. This could be in the form of a purely arm’s length vendor who is paid for the system’s development or as an equity partner or some combination of the two.

“Essential to the success of such an arrangement will be assuring prompt and accurate updates to the information and establishing sufficient trading volume and associated liquidity to insure investors that they can transact in reasonable volume without significant impact on prevailing prices. Marketcore [1], an intellectual property company, is a key innovator in this area and has developed foundational technology for creating healthy and transparent markets. One of Marketcore’s patented solutions [2] is centered on the provision of time-limited Transaction Credits™ to liquidity providers as well as those responsible for maintaining the continuous updating of the underlying data. These credits provide either discounts on future trades or privileged access to the uniquely valuable detailed data such a system makes available. Their terms of use also can be adjusted to drive business volume toward newly introduced products or areas where the exchange desires to promote market interest and liquidity. They also could be traded for cash as desired. In addition to liquidity providers, transaction credits can be allocated to originators and servicers as incentives for prompt and accurate updates to the detailed status information in the database.

“In essence, Marketcore’s patented technology leverages the most valuable commodity such a system creates, namely the consistently organized detailed data on the complex securities being traded, to solve the key challenges that such a new trading system faces, namely building reliable liquidity and assuring that the data are maintained in a timely and accurate fashion. Once established, the usage pattern of Marketcore’s Transaction Credits™ becomes a valuable source of market intelligence. Such usage data can offer valuable insights into evolving market interest and areas where increased analytical attention may indicate emerging market concern about potential risk.

“Of all the financial markets operating today, the housing finance market is among those most in need of Marketcore’s innovation and also the most likely place for it to succeed. Many of the same financial institutions that would instinctively oppose this innovation (because it undermines the advantages they gain as market-makers from the prevailing level of opacity) also have a need to unburden themselves of existing mortgage assets. Revival of the residential mortgage CDO market would offer them a means to draw new sources of capital into this arena on a fully transparent and well informed basis. There is simply no way these investors will return to this market until such transparency is clearly available. As the old saying goes, “Fool me once, shame on you. Fool me twice, shame on me.” Furthermore, if established on a firm foundation of currently updated information and stable incentives, a revived residential finance market would provide long-term investors with a valuable alternative that currently is simply not viable.

“The stars are well aligned to support such a development. One indication of this is that the first such transformation is actually in initial operation. LexisNexis has collaborated with the Council of Insurance Agents and Brokers (CIAB) and Marketcore to create the LexisNexis Insurance Exchange [3]. It is initially focused on property and casualty policies but it has plans to expand into life and health as well as reinsurance. Since a similar mechanism would be equally applicable to various heterogeneous credit and derivative instruments, this might just be the beginning of a much broader market transformation.

“If this transformation materializes, it will result in more robust and resilient credit markets. Such a structure would allow a wide variety of analysts to track and evaluate these securities based on reliable empirical data rather than on marketing hype or on complex top-down analytic techniques that are out of touch with the actual underlying collateral. In the end, such a structure would provide many opportunities even for those sell-side firms that will resist it the most. A more transparent market, built on access to reliable and up-to-date detailed data, will generate demand for new and innovative hedging instruments that these firms are so well equipped to provide. Given the broad social benefits that flow from more efficient allocation of savings into real investments with the best return, we all should work to realize this vision.”

[1] See http://www.marketcore.com
[2] Marketcore’s issued patents include US Patent Nos. 6594635, 7742966 and 8027909.
[3] See http://www.businessinsurance.com/article/20120101/NEWS04/301019988
http://blogs.lexisnexis.com/insuranceexchange/2012/02/10/getting-left-behind-is-closer-than-you-think

Click here to download the Marketcore press release

Click here to download the full NAIC white paper

Posted in 2 Press, NAIC, Uncategorized

National University of Singapore article names MC methods “Prospect” for Credit Markets

The Risk Management Institute of the National University of Singapore and the Global Credit Review

Dr. David M. Rowe writes, Credit Markets: Retrospect and Prospect:

Market-Driven Transparency

How could such a facility become a standard feature of the markets for complex financial products? As Adam Smith would have said, we will not accomplish this by appealing to “the benevolence of the butcher, the brewer” or the investment banking executive. The dramatic improvement in transparency that technology now makes possible will only be fully realized and effectively maintained through appeals to self-interest. In addition to regulatory pressure, establishing such a system will require several things. First it will require a well heeled insurgent organization with little or no stake in the current market arrangements to underwrite the technical development of such a system.

The Credit Research Initiative developed by Risk Management Institute at NUS in 2009 is providing such a facility in the domain of corporate credit risk. More specifically, through an easy-to-use web portal, the PDs for nearly 50,000 firms are available for users who can give evidence of their professional qualifications to ensure that they will not misuse the data. General users without global access are restricted to a list of 2,200 firms. Full transparency is obtained by documenting the methodology and operational implementation in a technical report that is accessible to all users.

Second it will require participation commitments from a core group of buy-side firms that would stand to benefit from the greater transparency, lower risk and sharper pricing that such a system would create. Finally, it will require commitment from some aspiring second-tier sell-side firms that would stand to benefit from a first mover advantage by being an early participant in such a transformative arrangement and the big increases in trading volume it would create.

Essential to the success of such an arrangement will be establishing sufficient trading volume and associated liquidity to assure investors that they can transact in reasonable volume without significant impact on prevailing prices. Marketcore, an intellectual property company, has designed a patented business method to achieve this goal. It is centered on provision of time-limited transaction credits to liquidity providers. These
credits provide either discounts on future trades or privileged access to the uniquely valuable detailed data such a system makes available. In essence, the business method leverages the most valuable commodity such a system creates, namely the consistently organized detailed data on the complex securities being traded, to solve the key challenge that any new trading system faces, namely building reliable liquidity.

The stars are well aligned to support such a development. One indication of this is that the first such transformation is actually in initial operation. LexisNexis has collaborated with the Council of Insurance Agents and Brokers (CIAB) and Marketcore to create the LexisNexis Insurance Exchange. It is initially focused on property and casualty policies but it has plans to expand into life and health as well as reinsurance. Since a similar mechanism would be equally applicable to various heterogeneous credit and derivative instruments, this might just be the beginning of a much broader market transformation.

If this transformation materializes, it will result in more robust and resilient credit markets. Such a structure would allow a wide variety of analysts to track and evaluate these securities based on reliable empirical data rather than on marketing hype or on complex top-down analytic techniques that are largely out of touch with the actual underlying collateral. In the end, such a structure would provide many opportunities even for those sell-side firms that will resist it the most. A more transparent market built on access to reliable and up-to-date detailed data will generate demand for new and innovative hedging instruments that these firms are so well equipped to provide. Given the broad social benefits that flow from more efficient allocation of savings into real investments with the best return, we all should work to realize this vision.

Credit Markets – Retrospect and Prospect

Posted in 2 Press, Current Events, Financial Crisis, NAIC, Uncategorized

American Banker article commends MC technology to Systemic Risk Council 7/12

Systemic Risk Council Has Arrived Just in Time:

The SRC could also encourage the FSOC and OFR to implement a comprehensive risk detection system that draws out risk-related information in near real time with available intellectual property and information technology. [...] Robust technology would render obsolete the information asymmetries that too big to fail banks manipulate to sustain their market power and to exploit their dominance over financial markets. As importantly, such tools would allow the too big to fail banks to clear the toxic assets that are clogging their books and retarding investment and protracting uncertainty.

Posted in 2 Press

Marketcore Offers Multiple-Patented Approach to Risk Assessment

A New Framework for Risk Assessment of Financial Products Powered by Incentive-Based Transparency

NEW YORK, March 27, 2012 – Marketcore (www.marketcore.com) has developed a new framework for risk assessment powered by financial and strategic incentives that actually induce usage by all market participants.  The system harvests the data of insurance, loan, and derivative financial products, in combination with progressive pricing structures that reduce costs and risks for all participants.  The Marketcore offering supports a broad range of applications across financial and insurance markets and products with full market reach across retail and secondary sectors.

The Marketcore data processing system is supported by a portfolio of issued patents covering in excess of 130 specific claims and is available for licensing by market participants across a multitude of financial markets and products.

The developers of the Marketcore products designed them to provide institutional investors with timely and complete information about market risks and activity and the ability to track risk elements of financial contracts in real-time and to view reliable valuation data comprehensively.  Among other applications, the system supports the creation of new exchanges for insurance and financial products, risk differentiated financial products, targeted search functions, modern regulatory tools, and new alternatives to the traditional ratings agency structures.

“While Marketcore’s solution does not provide a ‘rating per se’, it will provide an unimagined level of transparency of the underlying value of any financial instrument and its subsequent performance, thereby allowing market participants to properly assess risk,” said Michael Erlanger, Managing Principal of Marketcore, Inc.  “The solution directly links and advantages consumers, carriers and lenders, intermediaries, investors and regulators into a comprehensive, voluntary and collaborative community.  It resolves the risk transfer and valuation issues by providing real time updates on risks by using financial and strategic incentives to improve operating efficiencies, generate incremental revenues and higher business volumes, create robust financial data, increase liquidity and transparency, and rebuild confidence in the marketplace.  Using our system, everyone participates in the financial rewards that come from full disclosure.”

“There continues to be serious gaps in the knowledge that exists between the origination of a financial instrument and its subsequent placement.  This has led to a serious ‘disconnect’ when it comes to the valuation and expected performance of particular financial contracts, particularly in asset-backed securities,” said Connie Erlanger, Managing Principal of Marketcore, Inc. “From the point of view of rating agencies and even insurance and banking regulators, these gaps are a critical problem when trying to determine accurate valuation of assets held by insurers and other financial institutions. Our system bridges the data base gaps by accumulating and tracking information from the initial loan request to a bundled security, all the way through to its final disposition.”

Since 2009, Marketcore has licensed a portion of its IP portfolio to the LexisNexis Insurance Exchange (LNIE).  The LNIE facilitates the submission, rating and underwriting workflow between insurance brokers, agents, carriers and wholesalers while capturing relevant market analytics in the insurance origination market.

About Marketcore, Inc.
Marketcore, Inc. was founded in 2000 by Michael and Constance Erlanger and a consortium of individual investors with financial services and insurance industry expertise. To learn more, please visit http://www.marketcore.com/.

Contacts:
Lewis Goldberg / Sharron Silvers
KCSA Strategic Communications
lgoldberg@kcsa.com / ssilvers@kcsa.com
P: 212-682-6300

Posted in 2 Press

Michael Erlanger referenced in September Issue of Rough Notes

In his latest column in the September issue of Rough Notes, “AIG and the Meth Labs of Finance: How the GLBA came to replace Glass-Steagall and led us astray”, Kevin P. Hennosy references a letter to the editor written by Michael Erlanger in response to one of his earlier columns.

“I was pleased to receive and interested to read Mr. Michael Erlanger’s letter to the editor, (page 10 of the August issue) concerning my column in the June 2011 edition of Rough Notes.

Mr. Erlanger offers an insightful and well-reasoned response on the commentary that I offered with regard to the failure of American International Group (AIG). In general terms, I agree with his assessment, although he is correct that I place more blame on American insurance regulators than I believe he does.”

Mr. Hennosy goes on to explain the history of Glass-Steagall and its replacement, the GLBA, and to claim that the repeal of Glass-Steagall was a mistake, and that the GLBA should be repealed instead.

Both articles and Michael Erlanger’s response make interesting reading, and we highly recommend taking a look.

You can read the entire column here.

You can also click here to read the original column in the June 2011 Issue of Rough Notes, “Supervision & Regulation Aren’t The Same: NAIC chief rejects McCarran-Ferguson Act, again and again.”

And finally, you can read Michael Erlanger’s response here.

Posted in 2 Press, Financial Crisis | Tagged , , , , , , , ,