When my mind changes, I change the facts.
I am hardly qualified to add to the deluge of commentary on the financial crisis. But given that the qualified led us to this pass, I will plunge in regardless.
Supposedly, the crisis was caused by a lack of information. Or perhaps by a misinterpretation of information. It does astonish me that this perspective of the crisis has been largely ignored.
There have been several attempts over the last few years to improve the flow and interpretation of financial information. The aim of the Basel II accord (from its host):
“The Basel II Framework describes a more comprehensive measure and minimum standard for capital adequacy that national supervisory authorities are now working to implement through domestic rule-making and adoption procedures. It seeks to improve on the existing rules by aligning regulatory capital requirements more closely to the underlying risks that banks face. In addition, the Basel II Framework is intended to promote a more forward-looking approach to capital supervision, one that encourages banks to identify the risks they may face, today and in the future, and to develop or improve their ability to manage those risks. As a result, it is intended to be more flexible and better able to evolve with advances in markets and risk management practices.”
There was Sarbanes-Oxley, designed to assure the adequacy of corporate systems to withstand abuse and failure.
Then XBRL, designed to standardise the reporting of financial information so that apples, as it were, could be compared to apples.
So, many fine minds were bent on financial transparency and control just as the errors stoking the crisis were creeping up. And measures were taken more energetically in the US than elsewhere – while it was in the US that the storm brewed up.
Some senior banking executives say that they didn’t know what their employees were doing. Though this may be hard to like, it is not hard to believe. Information is filtered as it floats to the top of organisations. Employees don’t like to be the bearers of bad news. And in any case, the writing on the wall can be ignored.
Would improved information management really make a difference? Surely it would. The motion “if information were improved, it would make no difference to our decisions” would surely be defeated.
“When the facts change, I change my mind”, said Keynes and, I think, Kissinger after him. But to change your mind, you must know of the change in the facts.
Keynes’ dictum also skirts the (mis-)appropriation of facts to support opinions:
“Scholars assume that citizens perform better when they know pertinent facts. Factual beliefs, however, become relevant for political judgments only when people interpret them. Interpretations provide opportunities for partisans to rationalize their existing opinions.”
You could almost reverse him, thus: “When my mind changes, I change the facts. What do you do, Sir?”
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