When financial experts talk about transparency, what do they mean?
Transparency means, Do you know what is going on in an institution such as a bank or a mutual fund? Do you know what they are actually doing? What are the assets they hold, and so forth? In many cases it is very difficult to figure out from the information in accounting statements exactly what the assets are that they’re holding. In those cases, we say there is opacity or opaqueness. If we know what is going on, then we say there is a lot of transparency. So you need transparency to assess the amount of risk and the value of things? It certainly helps to assess risk if there is transparency about what the assets being held are, yes. There has been a lot of talk in the subprime crisis about systemic risk. What does that term mean? Systemic risk is talking about risk to the financial system, and this gets to the notion of contagion or domino effects. So the problem is if one bank or one financial institution goes bankrupt, then is that going to spill over and cause another institution–w
