The Disclosure Myth is Back It seems to be based on the assumption that data and information are the same thing. They are not. Just as you have to mine many tons of rock to get at a small quantity of gold or diamonds, masses of data are only useful when presented in a digestible form. I've seen cases where passing on reams of data is a means of obfuscation: "I've passed it all on, so nothing to do with me if it goes wrong".
The proposal from the ECB is that all of this stuff be passed on to ratings agencies. Yes, ratings agencies, those Aunt Sallies pilloried by various EU parties from McCreevy downwards. But raters have always had the right to ask for whatever information they want, so nothing really new there.
Then there's the suggestion (in the FT) that "analysts say the ECB should also push for full public disclosure of the loans that back these securities – as in the US – and not just to the ratings agencies." Would that be the highly liquid and successful US market we are all familiar with? Phew, the answer at last, just disclose a load of data and everything will be fine!
Hector Sants of the FSA said in a speech this week that investors should not buy investments they don't understand. That probably limits us all to Gilts.
A friend recently invested in a bond from the West Bromwich, which now appears to be in some difficulty. She did not engage in a rigorous balance sheet analysis, nor compare various ratios on an international basis. She would certainly not have been in a position to do a loan-by-loan analysis of several thousand borrowers-which is after all the real risk of a building society, whether in balance sheet or securitised form. She lacked both the skills and the time to understand all of this complicated stuff; but did understand that there is a government guarantee on deposits up to £50k.
There's nothing wrong with disclosure, but it should be in the form of information, not data.
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