Institute for Financial Transparency

Shining a light on the opaque corners of finance

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  • Transparency Games

    transparency games

    This is the story of how bankers with help from the members of Wall Street’s Opacity Protection Team (this includes politicians, economists, think-tanks, rating firms, investment charter constrained asset managers and the financial regulators) undermined the global financial system by reintroducing opacity.  The result of reintroducing opacity was the worse financial crisis since the Great Depression and the slowest economic recovery.

    Transparency Games is about the bankers of Wall Street and the City of London creating and maintaining a veil of opacity to hide behind as they rig the global financial markets for their benefit. Their bad behavior isn’t constrained to simply misrepresenting financial products like toxic subprime mortgage-backed securities, but includes rigging the global interest rate, foreign exchange, commodity and equity markets so the bankers’ bets pay off.

    The bankers’ bad behavior affects everyone. Whether you are buying electricity or a house or you are investing in your pension plan, opacity lets the bankers take money from you that they are not entitled to.

    In addition to misrepresenting securities and rigging the global financial markets for their benefit, the veil of opacity also allowed bankers to manipulate the response to the financial crisis that began on August 9, 2007. They used it to sell the idea banks should be bailed out using taxpayer money for fear financial contagion would trigger a second Great Depression. Naturally, part of bailing out the banks was not holding the bankers accountable for their misbehavior or stopping their looting.

    Transparency Games offers an inside look at how Wall Street and the City of London bankers reintroduced opacity and cynically fight any legislative or regulatory attempt to restore or retain transparency in the financial system. Filled with engaging anecdotes, the book illustrates the principles of transparency using clear plastic and brown paper bags. Based on meticulous research, the book examines the role of transparency in our financial system; the flaw in the design of our financial system that allowed opacity to creep back in; and the response to our current financial crisis that retained opacity for the benefit of Wall Street and the City of London bankers rather than restoring transparency and saving Main Street. It is told by an individual who had the temerity and tenacity over two plus decades to actually fight to bring transparency to all the opaque corners of the global financial system.

    Based on this experience, Transparency Games introduces the solution for fixing the design flaw in the global financial system. The solution is the Transparency Label InitiativeTM. This solution restores transparency by using a label to steer investors away from blindly gambling. This effectively ends Wall Street and the City of London bankers’ ability to hide behind the veil of opacity where they rig the global financial markets for the bankers’ benefit. This solution also ends bank bailouts due to the fear of financial contagion and the problem of Too Big to Fail.

    Quotes from the book:

    The lesson from the Great Depression was:

    While blindly gambling tends to work out well for Wall Street, it doesn’t tend to work out too well for investors. On the other hand, when investors have the information they need to make a fully informed investment decision, it tends to work out well for investors, and Wall Street still makes money.

    Based on the financial regulators’ response to the collapse of Continental Illinois, their willingness to hide the banks’ losses during the Less Developed Country Debt crisis and their active participation in manipulating financial accounting numbers provided to investors during the U.S. Savings and Loan crisis:

    The bankers knew before our current financial crisis the financial regulators would not require the banks to provide valuation transparency or be subjected to market discipline that would restrain their risk taking. This allowed the bankers to loot the banks through bonuses on briefly higher earnings before the losses became apparent.

    The bankers also knew when the inevitable crisis hit the lack of transparency gave the bankers a huge advantage in shaping how policymakers and the financial regulators reacted to the financial crisis. Opacity allowed the bankers to sell a self serving agenda under which the financial regulators would use the taxpayers to bail out the banks, rather than use the banks’ capital accounts to protect the real economy and absorb the losses. This bailout allowed the bankers to loot the taxpayers as the bankers continued to receive bonuses that would otherwise have been used to rebuild the banks’ capital accounts.

    Manipulation of Libor interest rates by bankers and the failure of the financial regulators to expose this conduct prior to passage of financial reform legislation like the Dodd-Frank Act shows:

    All trust in either the banks or their regulators is now gone. The banks were willing to rig Libor interest rates to guarantee they couldn’t lose on their derivative bets or to mislead on their financial health. The global financial regulators showed they had no problem with bankers rigging markets for their benefit as the global financial regulators were willing to let this activity continue for four more years after they learned the bankers were rigging the financial markets.