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Toxic transparency

Paul Wilkenson writes, in a letter to the WSJ, about tagging mortgage securities with XBRL to make reporting and trading easier and more accurate…

~~~~ “Let’s Use Technology to Help Value Toxic Assets

Perhaps the market would have preferred Treasury Secretary Timothy Geithner’s plan announced Feb. 10 if it incorporated insight from Gordon Crovitz’s “Time to Reinvent the Web (and Save Wall Street)” (Information Age, Feb. 9). Mr. Crovitz presciently reports how a combination of structured data and Internet technology could advance Mr. Geithner’s goal to “mobilize and leverage private capital.” Mr. Crovitz describes the application of “semantic Web” technology to streamline access to information about bad debts.

A semantic industry standard computer language to make investments transparent and Internet friendly already exists. Last year, the U.S. Securities and Exchange Commission mandated its use for disclosure about public company financials, mutual fund risk and return, and credit ratings. A crowd-sourced project by the non-profit extensible business reporting language software (XBRL) U.S. consortium produced more than 10,000 data tags for U.S. Generally Accepted Accounting Principles at the cost of a TARP rounding error. Software already exists to detect and explain nonstandard reporting. Finalizing data tags for the relative handful of facts required to price mortgage backed securities, other asset backed securities, and their derivatives — at least standard derivatives — would be easy compared to the work required to create tags for the vast universe of GAAP.

If the troubled assets are as poor as feared, those who hold them might fear the effect of industry computer standards making them transparent. It wouldn’t be the first time standards hurt some incumbents. For the economy as a whole, however, prices based on accurate information and subject to competition are far superior to today’s “values.”

Digitizing mortgage-backed securities information should be vastly easier than it was to digitize financial disclosure for thousands of public companies with diverse business models. A few service providers handle the great majority of mortgages. Other debt issuance and maintenance is similarly concentrated. Making small-cap, asset-backed securities more comparable, transparent, marketable and potentially combinable into larger, more liquid securities would be a particular bargain if it meant fewer subsidies billed to taxpayers.

The market wants to know the specifics of Mr. Geithner’s plan. XBRL could be one of them, giving the market specific data to help choose investments and discover prices.

Paul Wilkinson
San Diego”~~~~

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