STAFF NEWS & ANALYSIS
Transparency Meme Reemerges at the SEC
By Staff News & Analysis - April 18, 2013

A huddle over market transparency … The SEC held a fixed income roundtable on Tuesday to discuss two important issues: market structure and ways to improve it for municipal and corporate bonds. The SEC has as much authority to regulate this market as it does for equity securities, and it appears to be finally flexing its muscles with a little structure for the $18.7 trillion fixed income market. I tweeted the roundtable all day (you can read the whole thread here), and I've posted the best ones here (parentheses are my editorial comments). – Reuters

Dominant Social Theme: Sunshine is the best disinfectant.

Free-Market Analysis: This seems to be an issue for analyzing the emergence of long-time dominant social themes. We've already written about the godhead of the Federal Reserve, the deification of Ben Bernanke and the illusory value of gold.

A subterranean battle is being waged between those globalists who want to run the world using fiat money and central banking as their mechanisms and those who want more freedom, less control and fewer monetary manipulations.

Since the control of the few by the many doesn't work, those who propose it have had to come up with other memes that explain the lack of success and promote alternative solutions.

We long ago identified the "transparency" meme as the dominant weapon in the elite's quiver of thematic counterattacks.

The transparency meme is a good one because on its surface it seems to answer a number of criticisms about government control. Is modern, mercantilist government failing? More transparency. Are various cures seen as heavy-handed? More transparency. Does corruption abound? Transparency is key.

When we dug into the matter, we found that Peter Eigen, the founder of Transparency International, the most important transparency organization worldwide, had worked for the World Bank. This is a fairly good indication of who's sponsoring this meme and why it is high on the agenda.

But the trouble is (of course) that it doesn't work. Transparency does NOTHING to alleviate any of the difficulties that it is supposed to address. Take the SEC, for instance – the subject of this latest exercise in transparency. This short article informs us not only that the SEC is addressing the issue but also that it is also earnestly seeking ways to implement more of it.

The author of this squib (it is only a paragraph) fleshes out her report with a series of tweets that she issues from the meeting itself. Here are some of them:

Good sign… new @sec chair Mary Jo White is attending the Fixed Income Roundtable 1.usa.gov/15cEjRm — Cate Long (@cate_long) April 16, 2013

SEC Walters: "Why have the technology advancements of fixed income not flowed to retail investors?" #muniland — Cate Long (@cate_long) April 16, 2013

SEC Walters: "Dealers trade selectively with counterparties" "Lack of pricing transparency" #muniland — Cate Long (@cate_long) April 16, 2013

SEC Commissioner Gallagher: "Nothing has been given shorter shrift than our oversight of fixed income markets" #muniland — Cate Long (@cate_long) April 16, 2013

MSRB Real Time Trade Reporting System (RTRS) went live in 2005 and dealers had to report trade prices which were rebroadcast to market. — Cate Long (@cate_long) April 16, 2013

Municenter's Vales: Big advancement was the posting of real time inventory on ATS (alternative trading systems). — Cate Long (@cate_long) April 16, 2013

Municenter's Vales: E-trading makes bonds more accessible. Lot of advisors who used to use mutual funds starting buying single bonds. — Cate Long (@cate_long) April 16, 2013 …

Wells Fargo: When I started in biz 30 years we only priced bonds once a month. Now everyone has online statements. Clients tracking daily. — Cate Long (@cate_long) April 16, 2013

Did you read through all these tweets or did your eyes glaze over? The reality is that SEC officials are holding yet another meeting to examine another "problem" that shall never be solved, or certainly not by market transparency.

We ended with the Wells Fargo tweet because it is especially revealing. The Wells Fargo rep apparently states that 30 years ago bonds were only priced once a month (though surely the actual prices fluctuated throughout the month).

The point here is that daily, hourly or even minute-to-minute bond pricing hasn't alleviated any of the difficulties associated with such markets. Bonds still crash regularly and a mortgage bond crash is said to have triggered the Great Financial Crisis of 2007-2008.

Presumably you could have pricing of various instruments from nano-second to nano-second and it would make no difference. The problem that affect bonds, stocks and all other securities instruments is a MONETARY one. Central banks overprint, blow up markets and investors are fooled into investing before losing … everything.

After the proverbial dust settles, and the criticism of the authorities has somewhat subsided, the regulators poke their heads out of their respective acronym-heavy burrows and cautiously begin to hold confabs debating various "fixes."

High on the list, usually, is transparency. The SEC itself is based on the idea of transparency. It is just nonsense, of course. The only transparency worth a damn is the one offered by the Invisible Hand.

Count on nothing else, but leave markets alone and let competition and the private sector sort it out. Of course, this would entirely undercut the rationale for regulatory democracy – which is based on the idea that market failure requires regulatory wise men.

One hundred years of regulatory history has shown this is not a workable solution, however. Are there any others? Apparently not …

After Thoughts

Have you heard the SEC is holding a confab on transparency?

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