At the very same time that we have more information than ever available at our fingertips whenever we need it, much of the most importing data that is needed to keep a modern economy running has been totally obfuscated by the "geniuses" that created hedge funds, derivatives and other financial instruments that led to the 2008 financial meltdown.

Conservatives that like to promote the idea of free markets are often the biggest promoters of these sorts of schemes that do little more than contribute to the concentration of wealth. Free markets are great in principle, but they can only function properly if there are a sufficiently large number of actors on both the supply and demand sides of the equation so that no one can exert undue influence on the price. All actors also need unfettered access to the economic facts that affect their transactions so that they can make proper judgements about the price should be.

It's well past time to start breaking up oversized players in the markets and tearing down the walls that hide economic data so we can restore transparency.

#ows

Reshared post from +Tim O’Reilly

Must-read perspective on what's wrong with our economy: Hernando de Soto's Business Week piece, "The Destruction of Economic Facts." http://www.businessweek.com/magazine/content/11_19/b4227060634112.htm

Here are some snippets, the core of the argument:

"During the second half of the 19th century, the world's biggest economies endured a series of brutal recessions. At the time, most forms of reliable economic knowledge were organized within feudal, patrimonial, and tribal relationships. If you wanted to know who owned land or owed a debt, it was a fact recorded locally—and most likely shielded from outsiders. At the same time, the world was expanding. Travel between cities and countries became more common and global trade increased. The result was a huge rift between the old, fragmented social order and the needs of a rising, globalizing market economy.

"To prevent the breakdown of industrial and commercial progress, hundreds of creative reformers concluded that the world needed a shared set of facts. Knowledge had to be gathered, organized, standardized, recorded, continually updated, and easily accessible—so that all players in the world's widening markets could, in the words of France's free-banking champion Charles Coquelin, "pick up the thousands of filaments that businesses are creating between themselves."

"The result was the invention of the first massive "public memory systems" to record and classify—in rule-bound, certified, and publicly accessible registries, titles, balance sheets, and statements of account—all the relevant knowledge available, whether intangible (stocks, commercial paper, deeds, ledgers, contracts, patents, companies, and promissory notes), or tangible (land, buildings, boats, machines, etc.). Knowing who owned and owed, and fixing that information in public records, made it possible for investors to infer value, take risks, and track results. The final product was a revolutionary form of knowledge: "economic facts."

"Over the past 20 years, Americans and Europeans have quietly gone about destroying these facts. The very systems that could have provided markets and governments with the means to understand the global financial crisis—and to prevent another one—are being eroded. Governments have allowed shadow markets to develop and reach a size beyond comprehension. Mortgages have been granted and recorded with such inattention that homeowners and banks often don't know and can't prove who owns their homes. In a few short decades the West undercut 150 years of legal reforms that made the global economy possible.

"The results are hardly surprising. In the U.S., trust has broken down between banks and subprime mortgage holders; between foreclosing agents and courts; between banks and their investors—even between banks and other banks.

…
"We are now staring at a legal and political challenge. A legal challenge because American and European governments allowed economic activity to cross the line from the rule-bound system of property rights, where facts can be established, into an anarchic legal space, where arbitrary interests can trump facts and paper swirls out of control. The rule of law is much more than a dull body of norms: It is a huge, thriving information and management system that filters and processes local data until it is transformed into facts organized in a way that allows us to infer if they hang together and make sense."

Embedded Link

The Destruction of Economic Facts – BusinessWeek
Renowned Peruvian economist Hernando de Soto argues that the financial crisis wasn't just about finance—it was about a staggering lack of knowledge.

Google+: View post on Google+

Post imported by Google+Blog. Created By Daniel Treadwell.