Gary Greenberg

Will the SEC Give the Buy Side What It Needs?

Paul,

Re: Your comment -

"What it left out was the need to disclose the detail and subsequent data in a format that can be easily analyzed by potential buyers. That format, for which a list of data tags already exists, is XBRL. All that is needed is the leadership to force the sell side to disclose instead of muck around in opacity that's further confused by potential and actual taxpayer subsidies."

The solution is a "mother of all databases." See my blog entry: rwbeerdiet.blogspot.co...

The concept proposed by TYI, LLC of Needham, MA is for a centralized, database administered by an independent third party that would collect the relevant data on a daily basis, standardize it, verify and report it the next-day, delivering it to the desktops of investors and regulators around the world so that they could use the analytics of their choice to value and price the securities.

Getting the loan-level information is an issue, as you've stated. A crowbar, hammer or similar instrument of persuasion will likely be necessary. Barring that, legislation or regulation will have to suffice.



On Jun 18 11:58 PM Paul Wilkinson wrote:

> Actually, since they were getting gov't help after Lehman (note the
> AIG conduit to Goldman Sachs et al.) and it was not at all certain
> that full transparency would result in better prices, the more risk-averse
> position was to hold and recapitalize and wait rather than go for
> full transparency. Andrew Butter's article from Tuesday, and its
> comments, have it right: seekingalpha.com/artic...
>
>
> Mr. Greenberg is also exactly right:
>
> "Essentially, what would cause the buy side to return to the market
> and allow credit to flow through securitization again would be giving
> them more granular data on a more timely basis so that they could
> perform their own due diligence and have more trust in the ratings
> agencies methodologies."
>
> See the comments to the Butter article for links to ways to produce
> that more granular data. The Treasury plan yesterday at least called
> for disclosure of loan level detail. What it left out was the need
> to disclose the detail and subsequent data in a format that can be
> easily analyzed by potential buyers. That format, for which a list
> of data tags already exists, is XBRL. All that is needed is the leadership
> to force the sell side to disclose instead of muck around in opacity
> that's further confused by potential and actual taxpayer subsidies.
>
>
> Bear Stearns tried to offer some of its junk to the public in 2007
> but nixed the deal, presumably when they found out that the transparency
> required wouldn't get them the price they wanted. Here's a quote
> from the FT at the time:
>
> "Jack McCleary, head of asset-backed securities syndication at UBS
> said: 'The market does good job of sniffing out leverage. Dealers
> will look at funds with similar positions to ensure valuations are
> appropriate.'" -- www.ft.com/cms/s/0/f7b...
>
>
> Alas, Mr. McCleary was all too prescient about the ability of the
> market. Too bad there wasn't more transparency sooner to help it
> move faster, before opacity exacerbated the bubble.

Will the SEC Give the Buy Side What It Needs?

Steve,

Your question is essentially the same as asked by Fed economists almost daily. Why would an organization not do something that is in their economic interest?

The answer is that the organization defines economic interest differently, or in this instance, longer term than a single issue. It may also believe that it does not have to give up something to get the result it eventually wants.

1. Wall Street is built on asymmetrical information as Stiglitz showed in his Nobel prize winning research. Opacity is the gravitas of Wall Street profitability. As he and Ken Rogoff of Harvard have mentioned several times in this crisis, the financial elite will fight transparency with every weapon in their arsenal.

2. Wall Street doesn't want to set a precedent that might affect other, future areas of profitability that will rely upon opacity to generate large profits.

3. The buy side history is one of short memory. To this observer, Wall Street has been hoping for collective amnesia to strike the buy side and have them return to the market. That is unlikely to occur given the depth of the losses, the amount of advantage gained from opacity and the recognition that they were unable to perform adequate due diligence previously. That both the President's Working Group on Financial Markets (March 2008) and the European Union excoriated the buy side for not doing sufficient due diligence on their own and for their reliance on the ratings from the NRSRO industry (which also did not have the data they needed according to Moody's Special Report of Sept 25, 2007), is something that has not been lost on the buy side or their legal advisers.



On Jun 18 11:27 AM Steve in Greensboro wrote:

> Thanks, Mr. Greenberg, for the helpful note. Much of it I was already
> familiar with, but I have a question. Your position is that potential
> buyers are unwilling to buy given the current inadequate levels of
> transparency.
>
> "...Essentially, what would cause the buy side to return to the market
> and allow credit to flow through securitization again would be giving
> them more granular data on a more timely basis so that they could
> perform their own due diligence and have more trust in the ratings
> agencies methodologies..."
>
> Why wouldn't the sellers provide increased transparency on their
> own in order to get more buyers, better pricing, etc.? Why would
> the sellers need the SEC to force them to do something that is clearly
> already in their economic interest to do?