The Office of Risk Assessment of the Securities and Exchange Commission is responsible for coordinating the SEC’s risk management program. It goes without saying that it’s not an easy job.
The following report was one of many provided to the SEC at the request of the Director, Office of Risk Assessment, as part of Marketcore’s advisory work.
This is a long post, but it lays out in detail the way our IP can enable the SEC to more effectively fulfill their mandate of enforcing the laws that govern the securities industry and address the issue of identifying, tracking, and mitigating, systemic risk
Mr. Jonathan Sokobin, Director
Office of Risk Assessment
Securities Exchange Commission
June 9, 2009
Attached is our draft describing how Marketcore’s work fits into the mandate of the Securities Exchange Commission (SEC), and enables the SEC to more effectively fulfill that mandate and address the issue of identifying, tracking, and mitigating, systemic risk.
The outline of what follows is:
1. A statement of our understanding of the role and responsibilities of the SEC, and of your specific role as Director of the Office of Risk Assessment. We start with this because we want to make sure that we are accurate in our understanding of the scope and focus of the SEC/ORA mandate.
2. A list of recent items in the news that report on SEC enforcement actions and other related articles. We believe that in the past month alone, the SEC has taken actions that support our belief that our work would be of great value to the agency’s regulatory oversight and enforcement efforts, within its exiting mandate not to mention any future evolution of that mandate.
3. Our interpretation of the recent news reports about the SEC.
4. Information about Marketcore and our solutions, summarized in two tables that identify the Features and Benefits of the Marketcore solutions in the markets for loans, lines of credit and derivative products; insurance and reinsurance.
At the conclusion of our last conversation with you, we understood you to request that we clarify how the Marketcore system can be helpful to the SEC in improving its ability to fulfill its current mandate in the context of contemporary markets and their structures.
We hope that what follows is specifically responsive to your request. Please consider this a work in progress and feel free to pose questions and make suggestions! We look forward to hearing from you and having the opportunity to continue our conversation.
Connie and Michael Erlanger
Learning from the Past; Looking toward the Future
OUR UNDERSTANDING OF THE SEC, ITS ROLE AND RESPONSIBLITES
It is our understanding that the SEC is responsible for enforcing the laws that govern the securities industry, principally: The Securities Act of 1933, Securities Exchange Act of 1934, Trust Indenture Act of 1939, Investment Company Act of 1940, Sarbanes Oxley Act of 2002, and the Credit Rating Agency Reform Act of 2006.
A primary authority granted the SEC to facilitate the enforcement of these laws is that the SEC sets the rules for disclosure of information that securities industry participants must provide to the regulators. At this time, those disclosure requirements are met by the regulated entities filing mandatory reports in quarterly and annual intervals. These filings are available through the SEC’s Electronic Data Gathering, Analysis, and Retrieval system (EDGAR). EDGAR and all other information filed with the SEC are available to investors, for whose benefit it is collected.
The SEC was created in response to the collapse of financial markets in 1929. The goal was to protect investors by creating more transparency in financial statements, and to protect investors against misrepresentation and fraudulent activity in the securities markets. The federal government recognized the need to restore investor confidence in the markets, and to establish stability. The decision was to require companies to provide all relevant information necessary for an investor to make a sufficiently well informed investment decision. The SEC was also charged with responsibility for the governance and regulatory oversight of all securities transactions, the exchanges, and broker dealers – all in the interest of protecting the public. Within the SEC, the Division of Market Regulation sets the rules that govern the investment industry.
We understand that in 2004 The Office of Risk Assessment (ORA) was formed within the SEC. The ORA mandate follows (this is taken directly from the SEC website – italics and underlining added by us):
The Office of Risk Assessment (ORA) is responsible for coordinating the SEC’s risk management program. ORA was formed in 2004 to help the SEC anticipate, identify, and manage risks, focusing on early identification of new or resurgent forms of fraud and illegal or questionable activities. ORA focuses on risk issues across the corporate and financial sector, including issues relevant to corporate disclosure, market operation, sales practices, new product innovation, and many other activities of financial market participants.
ORA’s responsibilities can be grouped into three general categories:
1. Information Analysis. A key component of ORA’s activities is to analyze data on new industry trends and risks from a variety of sources, such as external experts, domestic and foreign agencies, industry and financial services, empirical data and other market data.
2. Managing the agency’s risk assessment process. ORA develops and maintains the overall process for risk assessment throughout the SEC, such as defining relevant risk frameworks and common risk language.
3. Serving as the agency’s risk management resource. ORA serves as a resource for each division and office in their risk assessment efforts, working closely with them as they work to identify, prioritize and mitigate risks.
RECENT & RELEVANT NEWS:
- On May 7, 2009, Mr. Robert Khuzami, Director of Enforcement of the SEC testified before the U.S. Senate Banking, Housing, and Urban Affairs Subcommittee on Securities, Insurance, and Investment. In his testimony, the Director was asked to address what resources are needed to “ensure that the SEC not fall behind again on its enforcement role”. The Director spoke directly of the need for “the improvement of the SEC’s ability to identify, track, and analyze data to identify risks to investors better.”1
- On May 28 2009, and on June 5 2009, articles appeared in various publications reporting on investigations by the SEC into allegedly fraudulent activities by Citibank, and by Countrywide. In both instances, a critical focus in the investigations is on whether or not those lenders properly disclosed to their investors the true quality of the mortgages that they held in portfolio and the true quantity of troubled mortgage assets that they held. The allegations against Countrywide reportedly address the unprecedented expansion of underwriting guidelines to ever increasing risks to be taken – despite the demonstrated increase in defaults of those riskier loans. The complaint filed by the SEC in Los Angeles federal district court goes on to cite Countrywide’s violations of various sections of the Securities Act of 1933 and the Securities Exchange Act of 1934. 2
- On June 5, 2009, Bloomberg News ran an article (“Geithner May Abandon SEC-CFTC Merger Resisted by U.S. Lawmakers” by Alison Vekshin), in which SEC Chairwoman Mary Schapiro is reported as having “…vowed the SEC and CFTC will improve cooperation overseeing credit-default swaps and other financial products if Congress decides they shouldn’t merge.” In the same article, Rep. Barney Frank is described as having “…said he’s aiming to get a comprehensive regulatory reform bill passed in the House by July that would create new authority to unwind non-bank financial institutions and monitor firms for systemic risk.”
- In the New York Times on Sunday June 7, 2009, there was an Op-Ed piece titled “The Economy Is Still at the Brink”, by Sandy B. Lewis and William D. Cohan. Among their many observations, questions, and suggestions, they make the following statement: “…As for those impossibly complex securities that caused so much of the trouble — among them derivatives, credit-default swaps and asset-backed securities — the S.E.C. should have the power to make public all the documentation surrounding these weapons of mass financial destruction, including all data about the current costs of buying and selling them and the cash flow underlying them.”
The above cited understandings of the role and responsibility of the SEC, and the news reports of the past month, appear to us to be clear evidence of the following:
1. The SEC is authorized in its original mandate to decide and enforce what disclosure is required by regulated entities to meet the standard of full disclosure to the benefit of all market participants.
2. The SEC requires more disclosure, not less, of critical information that drives the activities of financial market participants from individual investor to trading institution to electronic marketplaces.
3. The SEC is, in fact, already exercising its authority to require disclosure in its investigation of loan origination and risk valuation, including at Citibank and Countrywide.
4. Both of those investigations are specifically focused on the matter of underwriting standards, because the SEC already recognizes that an institution’s underwriting standards are the first step in establishing risk parameters for the counterparties to a transaction.
5. In the formation of the Office of Risk Assessment, the SEC has recognized its responsibility to address the issue of systemic risk. Any business practice that becomes the standard practice among multiple parties has the potential to become, or to cause, systemic risk. When that business practice goes unexamined by third party regulators, it is possible for it to spread throughout the industry – for good or for ill. The SEC, with the authorization of Congress, has recognized that it is that agency’s responsibility to address the issue of systemic risk in financial markets and institutions.
6. The SEC appreciates the efficiency created by an electronic database, as evidenced by its use of EDGAR.
7. SEC Chairwoman Mary Schapiro recognizes the need for the SEC to maintain its oversight of CDS and all financial products – on its own or in collaboration with other regulatory agencies.
8. There is widespread and growing public outcry for the regulators to get on the stick about doing their jobs in a manner appropriate to the times, and using the tools available through modern technology.
9. Within the credit market sector, the SEC has a critical role to play in its oversight of the mortgage-backed and asset backed securities markets. In the current credit crisis, no one knows enough about the current and future value of the individual assets that make up these securities – because the actual per contract performance of the securitized assets is not understood or made sufficiently transparent. As a result, market activity in one the world’s largest sector of credit market is impaired, which can lead to lower asset values and the loss of transactional norms. When transactional norms are lost, so is market discipline.
10. Ditto: collateralized loans obligations, collateralized debt obligations, credit defaults swaps, Commercial and Industrial (C&I) senior secured bank debt, etc. The first steps necessary for a return to liquidity is an actual understanding of the risk characteristics (as contained in underwriting standards of each contract), close reviews and comparative analyses (of operating metrics of the contract maker and the subsequent contractual payments received), and the establishment of liquidity-providing mechanisms (the use of incentives to induce transactional transparency and the on-going payment of transaction fees). All of this combines to re-create the normative behavior of markets in which information flows freely and business is conducted in an orderly and disciplined manner.
THE MARKETCORE SOLUTION GOES TO THE HEART OF THE CRITICAL RISKS
The Marketcore solution is an appropriate tool for the SEC to deploy immediately in order for the commission to do its job effectively and in a timely manner, going forward. We believe that if the Marketcore system had already been deployed, regulators would have been able to see, in near or real-time, precisely what Countrywide and Citibank (and other market participants) were doing in the market, the nature of the loans that they were then underwriting, and measure how the underwriting standards were changing, impacting such basic market risks, such as asset valuation, credit acceptance, performance and/or operating risk, price and term discovery.
Similarly, regulators could have tracked all loans through the system as they were securitized, or sliced, diced and traded throughout the secondary market, easily determining toxic alignments of perils as diverse as counterparty risk, moral hazard, currency issues, changes in market sentiment, country and litigation risk, volume differences by transaction amount or “size”, etc..
Rather than waiting to see information from the institutions every 90 days, the SEC could see the information almost immediately. On a systemic risk basis, bankruptcy by counterparty, definitional issues (absence of standardization), risk diversification, economic impact (inflation, recession and interest rates – yield curve), environmental aggregation and vulnerability, liquidity issues, market crashes, terrorism/war, transaction, transfer and market volatility could have been reviewed, possibly predicted, in a holistic setting. The Marketcore solution creates an industry utility that actually causes transparent markets to take root virally, and reinforces market discipline.
Several of the key features of the Marketcore.com, Inc. system are:
1. Electronic display of all underwriting standards and statistics, and transaction activity, in real-time. Our system generates an electronic “ticker tape” on the markets for loans, lines of credit, insurance and reinsurance. These are the very markets that touch the lives of more individual Americans than any other, and they are the markets that have not heretofore ever had such an exchange based transaction platform and real-time flow of data. In other words – they are opaque.
Our company’s suite of intellectual property (inclusive of a patent and several pending filings, trade secrets, trademarks etc.) creates a single data processing system for financial data and information disclosure, particularly as it relates to financial contracts, that is compatible with all other transaction platforms. As a market-neutral industry utility, the system collects, orders, tracks and displays all underwriting standards and statistics of risk-based instruments and financial contracts in insurance, reinsurance, and all credit instruments (e.g. loans and lines of credit) in near or real time.
The data processing system collects each element of descriptive and performance data in an individual contract, comparing, contrasting risk measures as appropriate. This is an ongoing process that starts from a contract’s earliest inquiry through its closure to its securitization, through to its placement with a final investor. With full consideration of all relevant privacy rights and issues, this information is displayed and tracked in near or real time throughout the life of the financial instrument.
The system creates a unique and rich repository of market data that heretofore has not existed for these markets. As has been proven in all other financial markets, disclosure (in the form of displaying information and making it available to all market participants) facilitates value creation and that adds to create risk distinctions that, at least on a comparative basis, help to calm markets and effectively price all form of risk. Monitoring of the risk elements and actual per contract performance helps assure timely and effective regulation as well as enhance risk prediction, mitigation, possibly avoidance, and can also provide tools for detection of fraudulent practices.
2. Deployment of a Transaction Credit ™ that functions both as an economic incentive for participation in the system, and as a tracking mechanism for all data connected to a product transacted through the system.
Proposed separately (but it can be used optionally as an inducement for transparency and as a direct market stimulus), is a “Transaction CreditTM.” Moreover, because the precise term of use of the Transaction Credit can be varied, the Transaction Credit is a formidable tool, a finely-focused non-inflationary stimulus for generating and directing business volumes. It is expressed as a grant of a common new measure of advantage by one party to a contract that effectively, for another party, reduces future costs of either the next transaction fees or access to strategically critical financial market information.
This tool initiates a critical process as a de facto liquidity provider and optional measure of price efficiency through which one can re-generate financial markets. As all the data elements are embedded in the transaction credits and protected by indicia, we can restore our economy while tracking all risks anonymously. In effect, we put a descriptive “ticker tape” on the very financial instruments that directly impact the lives of virtually every American citizen (and many financial markets). Then we add a designation in the form of the credit of the incentive that the counterparties are, in effect, trading transparency for better risk pricing. A new form of search by price or by participant need can be created.
3. Information is added back after each transaction, transforming the content of the instrument and giving the initial transaction greater value.
4. The system stands as a neutral market utility, accessible by all market participants.
Resolution of this economic crisis depends on trusting free markets to properly price all risks. This can only occur through unfettered access to information by all market participants. This is the simple, true meaning of transparency. The Marketcore solution is aptly expressed in our trademark:
“Information is to financial markets as oxygen is to life™.”
Following are the tables of Features and Benefits.
KEY BENEFITS: FINANCIAL PRODUCTS INCLUDING LOANS,
LINES OF CREDIT AND DERIVATIVE PRODUCTS
Benefits Borrower Intermediary Lender/
Regulator Higher level of application successes X X X Increased productivity and profitability, lower market entry costs X X X X Additional and considerable incremental revenue stream X X X Better decision-making based on accurate, timely market intelligence X X X X Increased ability for all participants to determine what’s going on in the marketplace in real-time: where they are, where they’re not , and where they should be X X X X Faster and better market intelligence disseminated X X X X Better, more-informed market positioning X X X Greater ability to identify market niches that are underserved X X X Improved understanding of risks faced by business customers X X X X Vastly improved trends prediction X X X X Informed decision making based on anonymous market analytics X X X X Facilitates the capture of all data associated with a transaction and aggregates and recycles the information to help create new products or discover other market possibilities X X X X Provides secure audit trail to assist all participants in preparation of annual audits, decreasing time and cost of regulatory compliance X X X X Improves transparency of origination and securitizing transactions X X X X Provides immediate, better, more targeted economic insights X X X X Creates risk analysis of financial instrument history which will then be available from initial inquiry through final investor X X X Allows regulators to better understand market dynamics and evaluate the state of competition for a particular market X X X X Provides search tool for all market participants X X X X Assesses competitive position in marketplace based on risk appetite X X X Provides better opportunity for targeted growth at lower acquisition costs X X X Provides improved ability to determine competitive position in marketplace X X X Provides improved accuracy of submissions and underwriting information X X Increases customer retention X X Increases market share X X X More granularly matches borrowers to lenders against more precise market pricing and underwriting X X X Creates objective electronic watchdog which keeps all parties honest and open X Adapts to changes in regulatory and oversight requirements by generating appropriate documentation and reports (i.e. enhanced disclosure and attestation requirements for finite reinsurance contracts) X X X X Enhances ability to monitor the effects of competition X Yields lower marketing and communication costs X X X Renders low cost and anonymous entry and exit for new products and services X X X Creates opportunities for higher revenues, higher volumes, greater operating cost controls X X
SAMPLE FEATURES AND BENEFITS OF EXCHANGE MODEL FOR INSURANCE
Feature Broker Insurer Reinsurer Commissioners Faster turnaround time and increased accuracy for quotes, business processing, insurance and reinsurance submissions X X X X Creates more efficient and accurate communication between brokers, insurers and reinsurers X X X X Maps non-ACORD underwriting applications to create new standards X X X X Provides market critical data that assists brokers and informs the insurance/reinsurance underwriting and quoting process X X X X Develops timely, low-cost information to create new products, identify underserved market niches and increase market share X X X X Recognizes risk characteristic differences in the submission of a particular risk by multiple insurance intermediaries and rejects the incorrect/incomplete ones, controlling the integrity of the marketplace X X X X Accesses all market participants X X X X Corrects lack of control over electronic documentation flow X X X X Simplifies policy tracking and enables timely transaction oversight X X X X Uses market disclosure by anonymous counterparts to improve matching and transparency X X X X All analytics are presented anonymously except to regulators X X X X Risk analysis of policy history from initial inquiry through performance X X X X Creates an international transaction platform X X X X Provides verifiable audit trail to facilitate regulatory oversight X X X X Lays the groundwork for insurance risk securitization that will significantly improve the scope of the market in all products X X X X Analyzes submission/quoting process for individual participant carriers to determine the competitive and non-competitive risk bidding variables X X X Creates more efficient and accurate communication with all appointed agents & brokers X X X Eliminates multiple policy submissions X X Increases issuance and servicing efficiencies X X Maps, in real-time, all insurance co-ordinates and correctly positions insurance inquiries in marketplace. X X Preserves the individual underwriting criteria and guidelines of the insurance companies X X Provides ability to benchmark X X X Provides access to more brokers & agents X X Improves oversight of business to broker, broker to insurer, and insurer to reinsurer transactions X Metrics measure operating performance X X X Adapts to changes in regulatory and oversight requirements by generating appropriate documentation and reports (i.e. enhanced disclosure and attestation requirements for finite reinsurance contracts) X X X X Better decision-making based on accurate, timely market intelligence X X X X Increased ability for all participants to determine what’s going on in the marketplace in real-time: where they are, where they’re not , and where they should be X X X X Faster and better market intelligence disseminated X X X X Better, more-informed market positioning X X X Greater ability to identify market niches that are underserved X X X Improved understanding of risks faced by business customers X X X X Vastly improved trends prediction X X X X Informed decision making based on anonymous market analytics X X X X Facilitates the capture of all data associated with a transaction and aggregates and recycles the information to help create new products or discover other market possibilities X X X X Provides secure audit trail to assist all participants in preparation of annual audits, decreasing time and cost of regulatory compliance X X X X Improves transparency of insurance and reinsurance transactions X X X X Provides immediate, better, more targeted economic insights X X X X Creates risk analysis of policy history which will then be available from initial inquiry through policy claim history X X X Allows regulators to better understand market dynamics and evaluate the state of competition for a particular market X X X X Provides information which may lead to resolution of AG’s concerns X X X X Assesses competitive position in marketplace based on risk appetite X X X Provides better opportunity for targeted growth at lower acquisition costs X X X Provides improved ability to determine competitive position in marketplace X X X Provides improved accuracy of submissions and underwriting information X X Increases customer retention X X Increases market share X X X More granularly matches insureds to insurers against more precise market pricing and underwriting X X X Creates objective electronic watchdog which keeps all parties honest and open X Adapts to changes in regulatory and oversight requirements by generating appropriate documentation and reports (i.e. enhanced disclosure and attestation requirements for finite reinsurance contracts) X X X X Enhances ability to monitor the effects of competition X Yields lower marketing and communication costs X X X Renders low cost and anonymous entry and exit for new products and services X X X Higher level of submission successes X X X Increased productivity and profitability, lower market entry costs X X X X Additional and considerable incremental revenue stream X X X
1.) Testimony Concerning Strengthening the SEC’s Vital Enforcement Responsibilities:
By Robert Khuzami; Director, Division of Enforcement; U.S. Securities and Exchange Commission; Before the U.S. Senate Banking, Housing, and Urban Affairs Subcommittee on Securities, Insurance, and Investment. May 7, 2009
…you asked me to provide my views on: (1) the extent to which the resource shortages and enforcement policies of the SEC in recent years have hampered aggressive enforcement of securities laws; (2) what changes are needed to ensure that the SEC does not once again fall behind on its enforcement responsibilities; and (3) what changes Congress should consider to ensure adequate resources and authority for the SEC to fulfill its vital enforcement role.
As I will discuss in more detail, we have faced and are facing many challenges, including a complex and growing market and limited resources. It is critical not only that we do our job and do it right, but that in so doing, we help restore confidence in the agency and in the marketplace. In my testimony, I will outline for you our plan for addressing the challenges that we face. I will discuss some of the changes Chairman Schapiro has instituted since her arrival that have already helped our program. Additional resources in my view also would enhance greatly our ability to keep pace with ever-changing developments in a dynamic marketplace, as well as rapid advances in technology. Further in this regard, I will touch on some potential legislative changes.
- Subprime mortgages: In another important case filed last week, we charged two former executives at American Home Mortgage Investment Corporation for allegedly engaging in accounting fraud and making false and misleading disclosures, including misleading disclosures relating to the riskiness of the mortgages originated and held by the company, to conceal from investors the company’s worsening financial condition in early 2007 as the subprime crisis emerged.
IV. Challenges and How to Refocus the Division of Enforcement
These are challenging times. The financial industry has grown dramatically over the last decade in both size and scope. As evidenced by the current financial crisis, our markets attract a large and complicated group of participants that deal in a variety of new, complex, and ever-changing financial products. In today’s market, the SEC oversees more than 30,000 registrants, including more than 12,000 public companies, 4,600 mutual fund families, 11,000 investment advisers, 600 transfer agents, and 5,500 broker dealers. In fiscal year 2008, the Enforcement Division received more than 700,000 complaints, tips and referrals regarding potential violations of the federal securities laws. Yet, our entire Enforcement staff nationwide — including lawyers, accountants, information technology staff, and support staff — is just above 1,100. Our mandate is broad, including not only regulatory misconduct by registered entities and persons but also fraud by any entity or person, whether registered or not, in connection with the purchase or sale or in the offer or sale of securities or security-based swap agreements. The challenge of our mandate grows as new financial products emerge that may fit the definition of a “security.”
In the face of these growing challenges, the Division needs sufficient resources to meet its mandate.
…We need to do this so that we can restore investor confidence and send a strong message to would-be violators that the SEC is on the beat. As our Chairman noted before the full Banking Committee, the SEC is the only agency focused primarily on the protection of investors. As the agency’s most public face in its efforts to protect investors, a strong Division of Enforcement is critical to the investing public’s confidence in the integrity of our markets.
The result of this exercise is that we have recognized critical items that need to be addressed if we are to improve our protection of investors. Consistent with the GAO’s recommendations, I propose allocating additional resources to the following categories:
Information technology support: The SEC is working on a number of technology initiatives designed to bolster its ability to detect, investigate, and prosecute wrongdoing. These initiatives include a review of how the SEC handles tips, complaints, and referrals; the improvement and expansion of the Division’s document management, reporting and case management capabilities; and the improvement of the SEC’s ability to identify, track, and analyze data to identify risks to investors better.
2.) RiskCenter.com, titled “June 5: Operational Risk – US SEC Charges Former Countrywide Executives with Fraud”. Excerpted from that report: “The SEC alleges that Countrywide chief executives deliberately misled investors and the market as to the quality of the loans in the lender’s portfolio, and the nature of their business. That from 2005 through 2007, Countrywide engaged in an unprecedented expansion of its underwriting guidelines and was writing riskier and riskier loans, which these senior executives were warned might ultimately curtail the a company’s ability to sell them. Countrywide was required to disclose these important trends to its investors in the Management Discussion and Analysis portion of its SEC filings, but failed to do so…2005, 2006, and 2007 misled investors in claiming that Countrywide “managed credit risk through credit policy, underwriting, quality control and surveillance activities…Its annual reports for 2005 and 2006 falsely stated that the company ensured its access to the secondary mortgage market by consistently producing quality mortgages…The annual report for 2006 also falsely claimed that Countrywide had ‘prudently underwritten’ its Pay-Option ARM loans…Countrywide developed what was internally referred to as a supermarket strategy that widened underwriting guidelines to match any product offered by its competitors….By the end of 2006, Countrywide’s underwriting guidelines were as wide as they had ever been, and Countrywide made an increasing number of loans based on exceptions to those already wide guidelines, even though exception loans had a higher rate of default.”
May 28, 2009 edition of the WSJ:
“Citigroup and the Securities and Exchange Commission are in the early phase of negotiating a settlement of an investigation into whether the financial giant misled investors by not properly revealing the total picture of its holdings of troubled mortgage assets back when the market began to collapse in 2007.”
3.) Background on Marketcore
The management of Marketcore grew up in the world of Wall Street and finance, where we worked for roughly five and two decades respectively. Marketcore is further supported by an experienced Board of Directors and Advisory Board with extensive background in all elements of finance, often at a principal level.
With family financial market training dating back even more decades, we know the world of finance intimately – better than most others we know, particularly when if comes to trading, sales and dealing. Our work is rooted in a deep knowledge of, and facility with, the ways by which financial institutions and principals count. We understand the critical role of information in markets, and how institutions have worked to keep markets opaque and business practices obscure, hiding fees, expanding spreads. But, access to information can power such volumes as to re-price risks to what the common man can afford, growing ourselves massively out of the crisis.
As you have read, our proposal is an acknowledged solution to the largest of economic perils, inclusive of the current financial crisis (see as an example of one area where it can create a market, “CRS Report for Congress, Financing Recovery from Large-Scale Natural Disasters”). It is fully responsive to growing calls for clarity in financial markets. It creates immediate incentives for participation that result in clear economic growth. With taxpayers on the line for all bailout costs, it makes political sense both to let them win (through transparent pricing and cost reduction exchanged for transparency) and to understand the necessary process in assuring that outcome. In addressing immediate voter needs, this proposal has the ability to be easily understood and to quickly re-focus the financial marketplace on value creation and liquidity provision.
Over time, we can diversify risks away from those that are solely credit-related to address and resolve issues related to risk transfer for: natural disasters; global warming; allocation of resources, potable food and water, health and medicine; even, threats to the civil peace – all issues of urgent concern to our Nation that represent other forms of systemic risk.
We can establish a 21st century finance that begins to diversify markets away from the domination of credit-related needs (Consumer, Corporate and Government debt all aggregate a common risk: credit) while encouraging transparency for newly originated and existing financial products. In this regard, the people have needs that do not relate to credit. This approach generates demonstrable liquidity as it facilitates funding of the largest risk transfers, the really major challenges requiring global action and funding.