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Transparency, Money and the 2008 Collapse of Credit & Stock Markets

Each day the stock markets trend lower, seeking floors, comfort. A sense of how bad it could get leads to further erosions of global equity values and banks unwilling to lend. Already Silicon Valley VC funds are sounding the alarm to portfolio companies: tighten up on spending, pare plans, boost revenue-production.

A week after its approval, Washington's $700 billion bailout did nothing to halt the rapid unraveling of global stock and bond markets, and in fact those markets slid nearly 20% in the first week after the "bailout". Political expediency, a Presidential Election, a country divided between red and blue contributed to a tide of partisan fear-mongering, notwithstanding the common wisdom on how to protect commonwealth against the gargantuan appetite Wall Street has for free government funding when the word "crisis" can be politically rallied to their lobbyists' cause and their politicians' coffers.

And I'm an optimist. I'm working to form an "ethical bank." I'm an Ashoka Fellow. What's the silver lining here?

When I moved to Silicon Valley in August 2005, the Dow was at 10,600, the NASDAQ was at 2,130 and Google was at 280. People on both coasts asked me "Bruce, why are you trying to start an 'ethical' bank in SIlicon Valley?" I tried all sorts of explanations, from "the social sector needs a bank that gives it credit for doing good," to "conscious consumers deserve better credit scores and cheaper interest rates," to "Silicon Valley encourages innovators who want to use social affinity tools for social impacts." Silence, blank stares, "oh that sounds interesting" politeness.

Until now. The Credit Crisis. Subprime. Collateralized mortgage obligations. Credit swaps and other exotic derivatives. Wachovia. Washington Mutual. Merrill Lynch. Goldman Sachs. Lehman. IndyMac, Countrywide. A $700 Billion bailout. Comparisons to the Great Depression. Every media outlet in the modern world explaining Finance 101 principles, and how our money works for purposes we wouldn't fathom, passing through hands some never knew existed, making bets we didn't know were legal, under the eyes of regulators one always believed could and would sort it all out, paid by politicians we never thought could bend the financial system in such ways.

Now Treasury Secretary Paulson will be investing taxpayer funds in picking banks too big to fail, with seemingly little investment in local and community banks.

So how would Silicon Valley help? How would Semantic Web tools offer transparency beyond what exists under regulatory accounting today? I see many ways that a Semantic web might enable a much more transparent banking system, so as to let the system, regulators and public see through even the most nuanced investment bank structured investment: map the collateral or right in collateral.

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