In Praise of Markets: Why Confidence Loves Transparency - an Essay
In the waning days of 2008, governments and central banks worldwide—with the best of intentions—lurched from one ad hoc intervention to another, multiplying daily the amount of public funds deployed to shore up our faltering financial system. Pundits and academics criticized each approach and forecast the death of investment banking, securitization, community lending, and even in some cases capitalism. Hedge fund managers locked in clients, banks refused to lend, multilateral over-the-counter netting arrangements morphed into bilateral deals. Exiting, discredited, CEOs found that their parachutes refused to open. Pyramid schemes were “outed.” The public puzzled over the different bail-out treatment of seemingly similar market players. And, regulators cringed at the wreckage and tried to sweep up the debris.
But through it all, there was one lone ray of light: The performance of our domestic and international exchanges (ie, regulated markets)!
It would be odd, then, if the banking supervisors and the system that brought us to this sorry pass, not to mention the new product, monetary and fiscal policies that supported them, would end up as the primary models for any program to reshape the financial system as some have proposed. It would be especially curious today, when technology can augment the functionality, transparency, operational reliability, and wealth-building capacity of markets in the real and in the financial sector. It would also be strange and disappointing if the result, albeit unintended, were to reduce the competitive strength and network efficiencies of which markets are capable. It is evident that structural reform to restore confidence and to mend global financial system breakage will be squarely on the table in 2009. Because (if only from a political perspective) the financial sector’s commitment to reform will be demanded to address what U.S. President-elect Obama and other world leaders have called “a loss of public trust and accountability,” it is important that advocates of capital markets speak out.
Agenda. This brief essay examines, in an anecdotal way, the purpose of capital markets and why they promote development. It recounts how the markets functioned during the recent, and continuing, credit crisis. It points out how the pillars of regulated market structure (transparency, immediate transaction records, reliability of settlement, rules of trading, and oversight) might be exploited further. It also recommends anticipating any trouble on the horizon to maintain and enhance robust exchange market structures.
About Andrea Corcoran
Andrea M. Corcoran, is the Founder and Principal of Align International LLC, a financial regulatory consultancy. Ms. Corcoran previously chaired the IOSCO Implementation Task Force, which developed an evaluation methodology for testing compliance with the IOSCO Objectives and Principles of Securities Regulation. She also served for many years in senior positions at the US Commodity Futures Trading Commission addressing issues such as specialist bankruptcy regulations and the crisis interventions and policy responses to Barings and Sumitomo. Ms. Corcoran is currently an adjunct professor of futures regulation at Georgetown Law Center, the Chair of the Securities Advisory Board of the Toronto Centre, a Senior Fellow at the Samuel and Ronnie Heyman Center on Corporate Governance at Cardozo Law School, and a member of the CESR Consultative Panel. Ms. Corcoran twice received the highest award for US government service from Presidents Reagan and Clinton, respectively.