Mathbabe: Bill Gates is naive, data is not objective

In a terrific post with direct application to the ability to bring transparency to all the opaque corners of the financial system like banks and structured finance securities, Mathbabe observes

rather than focusing on how individual models improve with more data, we need to worry more about which models and which data have been chosen in the first place, why that process is successful when it is, and – most importantly – who gets to decide what data is collected and what models are trained.... 

Bill Gates seems genuinely interested in tackling some big problems in the world, and I wish more people thought long and hard about how they could contribute like that. But the process he describes so lovingly is in fact highly fraught and dangerous. 

Don’t be fooled by the mathematical imprimatur: behind every model and every data set is a political process that chose that data and built that model and defined success for that model.

Please re-read the highlighted text again as Mathbabe has nicely summarized why letting the banks and the sell-side hijack the political process prevents transparency from ever being brought to the opaque 'black box' banks or the 'brown paper bag' structured finance securities.

In the case of structured finance securities, the sell-side through the industry trade lobbying organizations it controls set the agenda for bringing transparency to structured finance securities by trotting out the idea of 'data templates'.

By focusing attention on the data templates, the sell-side has been able to control the political process for bringing transparency to structured finance securities by taking many issues off the table.  These issues include 'when' data is disclosed and why not disclose all the data fields tracked by originators and servicers that are not protected by borrower privacy regulations.

The result as shown by a recent poll of investors conducted by Principia is that 59% of investors think that what is currently disclosed and what will be disclosed as a result of the efforts of the global regulatory community will not be sufficient to adequately perform due diligence.

Please re-read the previous paragraph in light of Mathbabe's observation: behind every model and every data set is a political process that chose that data and built that model and defined success for that model.

For the sell-side, success is defined as perpetuating opacity so that investors do not have the data they need to adequately perform due diligence.

The result is that anyone buying or selling structured finance securities is blindly gambling.

Of course, the exception to this is Wall Street which through its subsidiaries has access to all the data it needs on an observable event basis.