Transparency and Risk

These two words tend to spring up in most stories dealing with our current financial maelstrom. Let’s start with transparency: I get the feeling that it refers to the ability to see who’s doing what to whom and for what reason. Or something close to that, anyway. The problem lies in the fact that transparency becomes important only when bad things happen. Otherwise, no one seems to care about the who’s and the why’s.

Every business transaction holds some sort of agenda that must remain hidden to achieve a maximum gain. Asking prices are inflated so the seller can accept a lower price without sacrificing the desirable profit margin. And the buyer’s agenda of getting something for less is also satisfied. It would be difficult to conduct business in any other way.

Poker players understand this concept perhaps better than anyone. The cards are held close to the vest for a reason, you know. To play a poker hand with all of the cards face up offers the greatest degree of transparency at the expense of any potential gain. No, we don’t want transparency so much as we want fairness, but neither are overabundant in today’s world of commerce. We want the Ken Lay’s of the world to tell us when our Enron stock is about to tank instead of delaying the inevitable collapse. The deceit creates the call for transparency and only to provide an explanation for why things went so terribly awry.

Mortgage brokers knew the real estate bubble would someday burst, but continued to package financial vehicles to keep it going as long as possible. Now that many are upside down in their homes, the hue and cry for “transparency” in lending has increased exponentially. Do you expect your banker or broker to tell you the worst case scenario instead of the best? Sorry, that’s just not how one closes a deal. The worst case scenario depends upon the buyer crunching the numbers to decide whether the worst case is survivable. Many did not do the math and are now dealing with the consequences.

Risk, in a way, goes hand in hand with transparency as both are found in the commercial arena in the buying and selling of products. The same financial meltdown that sparked the cry for transparency has also created a demand for less risk. If you want to keep your money safe, put it in your mattress. Or maybe an FDIC insured bank. (What with interest rates so low, one may not be that much more advantageous that the other.) The only other choice is to invest it in other things, be they real estate or mutual funds, or stocks and the like. And each one has an associated level of risk. Once again, the choice lies with the buyer. Don’t expect the seller to tell you that you’re making a mistake. That kind of honesty (or transparency, if you wish) runs counter to the art of selling.

Ironically, no one seems to care about risk or transparency when times are good. Most folks didn’t want to know how Bernie Madoff was providing consistently high returns on investment. Only when his Ponzi scheme was revealed did they scream for more information. Many made out quite well in the real estate market and other investments, but now that the tide has turned, someone else must be held accountable. Someone should have told us to get out of that fund or that market.

Alas, we have only ourselves to blame for failing to realize that all gain involves risk and what goes up...well, you know the rest. And with integrity in business there is no need for transparency. No commercial venture is risk-free: all opportunities have downsides and the buyer must rely on counsel from others than those doing the selling.

A-mazed

The federal government has long suffered from the reputation of being too big, too slow, and too ineffective. Far be it for me to argue many of those points. I wonder, though, if the reputation is attached more to the particular entity instead of the trait it shares with many other organizations we deal with: bureaucracy.

We’ve all seen the rat in the maze as it desperately seeks out the cheese awaiting after a successful maneuvering through the labyrinth. And I’d say we’ve all felt the same way in trying to find the right person to answer our questions or concerns. Almost impossible, isn’t it? And it matters not whether we deal with a government agency or a corporate counterpart ensconced in layers of departments, divisions, and districts. The question arises whether these hierarchic obstacles are intentional or unintended consequences, but, regardless, they do not serve the customer near as well as they serve their own purposes. A few cases in point:

Homeless people in New York City will soon be faced with the requirement to pay rent at shelters where the stay was, historically, free. The city says it is merely following the orders of the state. The state says it is merely following the orders of the courts. And there you have the perfect bureaucratic storm: three different entities, leaving each to point to the other two. (You see, what with only two arms, we can point you, the customer/complainant in two different directions simultaneously. Three becomes cumbersome.)

Extended airline ground delays have created a call for a Passengers’ Bill of Rights. Once again, there are three parties involved: airports, airlines, and the air traffic control system. The airports blame the controllers and the airlines. The controllers blame the airports and airlines. And, you guessed it, the airlines blame the controllers and the airports. See what I mean? Anyone seeking answers soon becomes dismayed and disoriented in this never-ending blame game and surrenders long before satisfaction is achieved.

Looking for those that authorized torture in Gitmo and elsewhere? Good luck, because the same dead-ends and constant twists and turns that we see in the maze will wear us down long before any definitive conclusion is reached. Anyone involved will earnestly point in another direction and, in this case, there is no lack of suspects so the public will grow weary long before any indictments are handed down.

Here’s one with a slightly different slant: the recent investigation into the Colgan Air crash in Buffalo, NY has brought about a cry for a change in the work rules and pay provided to regional air carrier pilots. The cry comes from the public and the National Transportation Safety Board (NTSB) and is directed at the FAA who writes such regulations. The NTSB, unfortunately, has no power to alter existing or introduce new regulations. That is the FAA’s job. The FAA has another job: to promote the air travel industry. So now, when such changes are considered, the airline industry lines up outside the FAA’s door and cries that they will go broke under such onerous demands. And the FAA is screwed (along with everybody else) because they cannot address safety while ensuring a profitable air carrier industry. So, generally, they do nothing.

Granted, my examples all fall somewhere within a governmental system, but think of your dealings with those whom you do regular business. “Oh, that’s not my department” or, “The person you need to talk to is out right now” or, “It’s out of my hands”. You name it, we’ve heard it. The bureaucracy successfully wards off the questioners, investigators, and prosecutors while protecting the precious status quo that is it’s life blood.

“So what’s the use?” you ask. A good question, perhaps, and I am hard pressed to provide a meaningful solution. To do nothing, though...to shrug and walk away serves only to embolden those that would favor obfuscation over simplicity. Keep looking for that responsible nabob who is wreaking havoc in your life. In so doing you’ll send a message that someone is paying attention.

One last thought: we are hearing alot about “transparency” as an answer to our confusion. This is supposed to provide everyone a closer look at the goings-on within any bureaucracy. While that may be true, it does nothing to address the circuitous routes and endless u-turns found in the aforementioned rat maze. So what we now have is a maze whose walls are clear rather than opaque: we can see the cheese, but we are no closer to our nibble than before. Feel any better?