As The Atlantic authors Frank Partnoy and Jessie Eisinger say
Some four years after the 2008 financial crisis, public trust in banks is as low as ever.
Sophisticated investors describe big banks as “black boxes” that may still be concealing enormous risks—the sort that could again take down the economy. A close investigation of a supposedly conservative bank’s financial records uncovers the reason for these fears—and points the way toward urgent reforms.Transparency that still is not available for banks or structured finance securities.
The financial crisis had many causes—too much borrowing, foolish investments, misguided regulation—but at its core, the panic resulted from a lack of transparency.
The reason no one wanted to lend to or trade with the banks during the fall of 2008, when Lehman Brothers collapsed, was that no one could understand the banks’ risks. It was impossible to tell, from looking at a particular bank’s disclosures, whether it might suddenly implode.
For the past four years, the nation’s political leaders and bankers have made enormous—in some cases unprecedented—efforts to save the financial industry, clean up the banks, and reform regulation in order to restore trust and confidence in the American financial system.
This hasn’t worked.Not surprisingly because the banks lobbied against being required to provide ultra transparency. The banking lobby effectively wrote the Dodd-Frank Act and they went so far as to create the Office of Financial Research as a place where transparency would go to die.
Banks today are bigger and more opaque than ever, and they continue to behave in many of the same ways they did before the crash.This result reflects the simple fact that bankers continue to operate behind a veil of opacity. As everyone knows, sunshine is the best disinfectant. Require the banks to provide ultra transparency and their behavior will immediately change for the better.