Bradley in DC
12-01-2007, 07:31 AM
http://www.federalreserve.gov/newsevents/speech/kroszner20071130a.htm
Governor Randall S. Kroszner
At the Philadelphia Fed Policy Forum, Philadelphia, Pennsylvania
November 30, 2007
Innovation, Information, and Regulation in Financial Markets
...Price Discovery
Due diligence is an important part of the price discovery process. The due-diligence process allows market participants to “trust but verify” market-provided information through a range of activities, from assessing risks and exposures through stress-testing to assessing the enforceability of the contracts that define the legal relationship among originators, sponsors, investors, and guarantors. The due diligence is complemented by risk-management structures that allow participants to interpret, understand, and act appropriately in response to the information in the market.
Recently we have seen how a lack of information and inadequate due diligence and risk management have created problems in the market for certain structured finance products...
[n.b. The government-mandated regulatory scheme is undermining the important price discovery process of the market. See Hayek's Prices and Production, among other works, for more info on this topic. Garrison has a useful PowerPoint here:
http://www.auburn.edu/~garriro/lselect.ppt.]
Governor Randall S. Kroszner
At the Philadelphia Fed Policy Forum, Philadelphia, Pennsylvania
November 30, 2007
Innovation, Information, and Regulation in Financial Markets
...Price Discovery
Due diligence is an important part of the price discovery process. The due-diligence process allows market participants to “trust but verify” market-provided information through a range of activities, from assessing risks and exposures through stress-testing to assessing the enforceability of the contracts that define the legal relationship among originators, sponsors, investors, and guarantors. The due diligence is complemented by risk-management structures that allow participants to interpret, understand, and act appropriately in response to the information in the market.
Recently we have seen how a lack of information and inadequate due diligence and risk management have created problems in the market for certain structured finance products...
[n.b. The government-mandated regulatory scheme is undermining the important price discovery process of the market. See Hayek's Prices and Production, among other works, for more info on this topic. Garrison has a useful PowerPoint here:
http://www.auburn.edu/~garriro/lselect.ppt.]