Regulation versus transparency

With the financial meltdown comes the palpable call for more regulation.

Does that make sense? Or is that simply a basic human knee-jerk reaction? A basic human urge for control so we can feel safer? 

Really, it makes little sense. In itself it does not fix anything, it merely patches something broken, and we know it. In addition it hampers natural development towards something better.

To fix something one has to recognise the root cause, then do something about that.

Gather a group of people around a table, leave 10 € on the table saying it's yours. Would anybody pinch it in front of all? Not.

Now let the public freely wander through the same room at any time, would the money still be there next morning? Probably not.

Now tell the same public group that if they increase their holdings with 10 € within the next hour they will be paid another 10 € as a bonus. How long would the money remain on the table? Three minutes tops.

Transparency delivers instant ethical behaviour. Lack of transparency leaves all up to the individual. Lack of transparency combined with stupid bonus schemes, well, we know what happens then. 

Focus on transparency, regulating the life out of everything is counterproductive.

Looking for the root cause for lack of transparency? In my view double-entry book keeping can be seen as the biggest supplier of opacity. So I would suggest replacing that.

Double-entry fog clouding the view...

Comments

[Henning Petersen]

Transparency is enough to ensure ethical behaviour only when matters are so simple as a ten dollar bill on a table.

Remember Enron? All the information required to see the fraud was publicly available, released by the corporation itself. It took a whistle blower to get a reporter to look into it, and he had a hard time understanding what was going on.

The reason? Complexity and the cost of information.

Now how simple are those financial products that got us into the mess? Will transparency help? Certainly. Will it be enough? Very unlikely.

You're right about incentives, though. The only proper way to implement them is not to offer any.

[sig]

Henning, precisely - Complexity and the cost of information.

But that again is based on the datamodel and the capture method (Garbage in etc...) as well as the speed between the activity and the reporting.

All areas where double-entry book keeping stinks, made for paper based ledgers as it is. Start there and the rest will follow I say... :)

[Basic Bookkeeping Online]

You just pin the issue very well. I agree that double entry bookkeeping would be such a great help to ensure proper records are kept.

[sig]

Dear Basic Bookkeeping Online,

congratulation, with this comment you just won the prize of being the stupidest comment spammer of the month!

(Lucky you, that's the only reason I'm not deleting the spam comment as I normally do...)

It does not forebode well for your customers that you cannot (or don't bother to) read, which is a tad sad.

If you take another look above you will find I argue, and express clearly, that double entry book keeping should be abolished - quite the opposite of your understanding according to your nicely crafted comment.

Enjoy your price and please do not come back until you have finished your reading classes. Or have hired somebody who can read and understand what they read.

Best,
Sig