Monday, March 31, 2008

Tis the season for financial oversight reform...

In the spirit of the season, I have a suggestion for the reformers who strive to make the financial world a level playing field for individuals and big-money insiders. How is it that it can be hard to tell how much exposure a public company has to various industries and financial commitments? Why should it require an insider analysis, usually after the fact, to inform investors that a company has more leveraged exposure to risky investments than actual capital?

I would suggest that it should not, in fact, be legal for public companies to obscure their financial records to the point where investors cannot tell exactly what the current financial state of the company is, including all investments and exposures. I suggest that company executives be personally liable for not only inaccurate financial disclosures, but also for incomplete or intentionally obfuscated financial disclosures.

Specifically, I would suggest two changes to the regulations to enforce this:
1. Create a standard quarterly financial reporting form, like a tax form, preferably available to investors and analysts in computerized (pure data) form, for easy presentation, comparison, and analysis. Include all types of investment and financial conditions in the standard.
2. Require public companies to disclose any additional financial information specifically requested by any shareholder after any quarterly report, to the level of individual holdings or obligations. These should be disclosed to all shareholders at a minimum, and preferably included in future quarterly reports.

Anyway, all this is kinda a thought experiment, since the chances of getting meaningful change to oversight which benefits anyone except lawyers is roughly the same as the chance of not having a public bailout of the mortgage industry. But that's probably what I'd do, if I were changing oversight.

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