The Egocentricity of the Present Part 15 of 22
Seasoned investors and creditors know that incomplete informationor information asymmetry, in technical jargonis a fact of life in financial markets. In fact, the presence of information asymmetries goes a long way toward explaining the structure of financial markets and institutions. In our system Secrets of Successful Traders, we have implemented a process of delegated monitoring to address these asymmetries.
Let me explain what I mean by delegated monitoring. Because an individual saver would be hard-pressed to monitor the many potential borrowers to whom they could lend, they have delegated that monitoring role to their bank, which then is in charge of keeping tabs on borrowers. In the U.S., where the safety of deposits at most banks is federally guaranteed, regulators are a delegated monitor, loosely speaking, watching over banks on behalf of their collective depositors.
The regulators also are not above delegating some work. Rather than attempting The Amazing Stealth Forex Trading System to monitor the entire universe of financial institutions, U.S. regulators rely heavily on a core group of very large money center banks with significant exposures, expecting them to act as delegated monitors, disciplining the remaining players in the financial system through effective controls on counterparty risk by assessing and limiting the risk of other banks, hedge funds and private equity firms. And finally, regulators and investors alike have come to depend on ratings agencies to assess and monitor firms and securities on their behalf.
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