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Invest in financial literacy

Reform the fractured foreclosure process

Adopt a voluntary mortgage write down plan

The Federal Reserves dramatic interest rate deductions

The big banks continue to suffer from indigestion

Credit scoring direct marketing and securitization

Oil is Amplifying the economic fallout

Millions were losing their homes to foreclosure

As mortgage loan quality weakened and foreclosures began

Watching a financial crisis feels much like watching a natural disaster

US housing and mortgage market in a new light

When Insurers Need Insurance

Both transparency and accountability are vital to a wellfunctioning financial system. Both were thought to be present until the subprime financial shock occurred.

Transparency means timely, meaningful, reliable, and complete information is available regarding financial products, institutions, and markets. In transparent markets, financial players borrow, lend, and buy and sell aggressively. In opaque markets, players are uncertain, and they tend to panic in times of trouble, just as they did during the subprime shock.

Financial products were anything but transparent. Complex mortgage loans were offered to homebuyers and nearly incomprehensible mortgage securities were sold to investors. Too many financial institutions hid in the shadows and outside the regulatory light. Large global banks took on risks that they kept off their books until forced to take responsibility. No one really knows what most hedge funds are up to. At times it was all but impossible to reasonably price most mortgage securities. Even the integrity of the LIBOR interest rate, a daily financial benchmark used to calculate financial costs all over the world, has been called into question.

Accountability means someone is ultimately responsible if mistakes are made. No one bore responsibility for the performance of mortgage loans made during the housing boom, and as a result, many bad loans were made. The mortgage securities market remains in disrepair partially because it is unclear how to apportion responsibility for the performance of the underlying loans. Someone must have enough financial skin in the game to want to be sure that good loans are originated and securitized.

Ensuring transparency and accountability requires confident regulatory oversight, which, in turn, must be empowered by Congress and the executive branch. Now that the Federal Reserve has explicitly backstopped the broker-dealer industry via its new credit facilities and its resolution of the Bear Stearns collapse, the quid pro quo should be a more watchful and questioning eye on that industry's capital and activities. This will also provide a better window into the hedge fund industry.

The SEC must also become more aggressive about policing financial statements, audit opinions, credit ratings, and analyst reports. There is a balance to be struck between the benefits of transparency and accountability and the costs of greater disclosure by financial players. The subprime shock showed how unbalanced things had become. It is up to regulators to set it right.