In recent posts, I've been ranting about abuses in the Stock Market.
Truth be told. I prefer doing to ranting.
IMHO, the problems in the current market result from gaps in the securities traded and the real items that the securities represent.
A driving force in the 2008 market collapse was the fear that bundles of mortgage backed securities were rife with bad loans. The market froze and banks collapsed as people lost confidence in the value of the securities.
Gaps in the trading system made things worse. As people lost confidence in securities, Hedge Funds hit the market with an unprecedent barrage of short selling. In the current regulatory regime, there is a multiday gap between a trade and transfer of the stock. During the market crash, there was an increase in the failures to deliver stock purchased.
It appears that these Failures to Delivered artificially accelerated the crash.
The crash was caused by investment tools that do not accurately reflect the real items behind paper securities. IMHO, the solution is to create a new exchange with fewer gaps.
Anyway, I just registered the domain name OSRTX.com. The acronym stands for Open Source Real Time eXchange.
Unfortunately, a blog is not the right format for writing a proposal. As such, I will place the proposal on the page called The Shared Equity project.
The loss of confidence (trust) in the investment instruments and in the market has a lot to do with poor information -- insufficient transparency. Poor information about an instrument leads to an inability to place a proper value on it.
ReplyDeleteThe problem now is that, except for some of the instruments that have successfully traded, the information available about the remaining problematic instruments is still so poor that no one can determine their value. (Except for President Bush and Secretary Paulson, who claim to somehow magically know that that the government will make out like a bandit if it buys up these instruments.)
Better transparency about the nature of the instruments and who owns (or controls) them would go a long way toward preventing future debacles like this one.
I am convinced it is the tools and not just the people. If engineer types sat down and created a new set of tools designed for people who want to share equity, then I think they could crack this egg and make a winning product.
ReplyDeleteThe keys to a successful system would be to make the equity owner the focus of the exchange. The program would use Open Source and real time transactions to maximize transparency.
It would be a super fun system to program.