The Madoff Chronicles - Part III

Opacity v. Transparency

Which brings us to 2009 and the latest round of opacity vs. transparency in the financial world.  ABC News attempted to learn from the recipients of the $700 billion government bailout what they had done with the money, and was sent packing.  The government didn’t bother writing a requirement for accountability for the money into the bailout program, and so it cannot get the information either.  After providing nearly a billion dollars in loan guarantees, loans, and outright gifts, the United States government is unable to learn what its largesse has been used for.

Right now each and every one of us gleefully chuckling over the folly of the rich and connected who tossed their money down Bernie Madoff’s rathole are doing exactly the same thing.  Our tax dollars are being tossed into a couple of dozen ratholes and all we ever get are glimpses of what we’re getting for the effort - glimpses like AIG’s lavish employee retreat, which aren’t exactly reassuring.

This is unacceptable.  Not only is it bad governance.  It is bad capitalisms.

Believe it or not, it is not actually a law of capitalism that transparency is verboten.  It has just increasingly been allowed to run that way.  Opacity has been rewarded in the private markets, because investors would rather hear about returns than ask what their money is really being invested in.  Opacity is being rewarded in the bailout, because the government - for reasons that surpass understanding - has shied away from requiring that the recipients of the money account for it.  Transparency, not opacity, needs to be rewarded.

We need to require more transparency everywhere in our financial world.  As part of the privilege of raking in billions of dollars of investments from people, we should require that financial institutions make meaningful disclosures about what they are doing with the money.  The sheer volume of financial transactions being packaged limits the depths to which we can view into the murky waters, but we should at least have a clean, clear window to look through.

And all the more, we need transparency from the increasingly-broad range of institutions putting their hand out for a piece of the bailout cheesecake.  “Thanks for the cash, but we aren’t telling you what we’re doing with it” is unacceptable.  Period.  

Madoff’s rebuff to anyone inquiring into his fund was that his system was proprietary, a trade secret.  (“Ponzi is a registered trademark of Bernard Madoff and cannot be used, transmitted or published without the express permission of Madoff and the United States Bankruptcy Court for the Southern District of New York.”)  How this statement did not set off alarm bells for each and every investor is simply amazing.  But nobody seems to think that is such a surprise.

The reason is that we have become used to putting our money where we have no idea what will become of it.  We don’t expect to know what happens - which is madness.  We all pay taxes, but nobody can congently explain what the government is doing with the money.  And then the government spends a couple trillion more than it has, but no one can cogently explain how the deficit will be eliminated.  When there are trillions involved instead of thousands, we collectively engage in magically thinking.  The numbers are too big, so we allow ourselves to believe that it is too big to understand but will be alright in the end.  This is folly.

Let’s ask our government to push for a little more transparency.  After all, it’s our money.