One interesting conclusion in reading Micheal Lewis’ “The Big Short: Inside the Doomsday Machine” is that bonds markets should be more transparent so that both buyers and sellers can have better ideas on what bond prices are.
Knowledge of prices is a key tenant in pure capitalism, and one supplier like to avoid. Have an object become a commodity moves into a low-margin business, because a competitor’s product can easily be substituted. Buyers are big winners in transparent markets.
The equity markets has become more transparent and open in recent decades as discount brokers grew. Present a choice, buyer happily dropped the “research” and personalized advice that full-service brokers offered. Maybe it was the difference in commissions, and the ease that technologies, such as telephone trading and later internet trading.
Lewis maintained in his book that one reason Wall Street firms moved to quickly in the sub-prime and CDO market was the commissions on selling these products was so much higher than the ever-shrinking commissions in the equity markets.
A public market similar to the stock market is growing in more areas of the bond market, especially in the public sector, but it’s still a long way from being as accessible as equity markets.
- WSJ: Michael Lewis’s ‘The Big Short’? Read the Harvard Thesis Instead!
- Charles Rowley: Increasing Transparency in the Bond-Rating Market
- There are many scholarly and industry studies of transparency. Many are in PDF formats. A Google search turns up many of the PDFs.