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Thursday, November 22, 2012

Financial Crises due to a breakdown of transparency


 
Transparency is another important aspect of good governance.Governments have access to a vast amount of important information.Dissemination of this information through transparency and open information systems can provide specific information that firms and individuals need to have to be able to make good decisions.

                                                     The financial crisis was a case study of the breakdown of transparency at many levels.Take For Example,AIG and its "small" derivatives unit,headed by Joe Cassano.This unit was conveniently classified and located in London so to ensure particularly lax oversight over the dubious accounting and disclosure particles evidently abetted by its chief.This insurance behemoth came to its he downfall because its leadership had made some very risky bets,hid them from regulatory oversight,and moved the risky business abroad.
                                                  Capital markets depend upon information openness and transparency but the nature of these complex derivative products made it difficult for most people to understand,much less regulate.The collapse of the giant investment banks and the financial system are due to the lack of transparency surrounding these products and the loss confidence in the counter parties involved.As a result,investors panicked,causing the markets to tumble..!!

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