The Trust Meltdown is palpable in the United States and Europe. Ordinary people in everyday nversations believe that their lives have been made harder and riskier by a handful of powerful people who violated trust that society had placed in them. In their minds, they are victims. There is no shortage of villains.

There is also significant cynicism about the cures that would be vindicators propose. As is happens, the majority of citizens are pragmatic and full of mmon sense. They are suspicious of the “witch trials” initiated by politicians and trumpeted by the media. They see through and resent the smug arrogance of public policies that assume the public needs to be sheltered from harsh truths. Fear and panic me from the unknown. Good public policy makes much more known. The path to nfidence lies in transparency.

We have ample precedent. The Crash of 1929 and the Depression was redressed in the short term by massive stimulus and in the long term by transparency. What do WE mean, and how do we know?

We are most familiar with the United States. Just as America’s financial industry is in distress now, it was in distress in the 1930’s. Then as now, there was significant call for regulation.

But the differences between then and now are striking. Now we are calling for regulation that is ever more prescriptive about the operations of the financial services industry: what credit card fees can be charged what cannot. Now we are selectively taxing one group of producers and subsidizing others: taxing borrowing and bonuses in the financial services industry and not in others.

By ntrast, the wise policies of the 1930’s were rooted in the idea that transparency is a key part of the answer. The interests vested in opacity screamed and wailed. The legislative output of the 1930’s was remarkable:

The Banking Act of 1933 (Glass– Steagall) separated deposit taking from proprietary trading and

established the Federal Deposit Insurance rporation.

The Securities Act of 1933 mandated that public mpanies tell their investors something about the mpany’s financial health. The Securities and Exchange Act of 1934 obligated broker dealers and exchanges to act as honest agents for their customers and established the Securities and Exchange mmission to enforce the Act.

The Trust Indenture Act gave dispersed retail bond holders a Trustee representing their llective

interests, a unterbalance to the power o f the issuer. The Investment mpany Act gave investment managers fiduciary obligations. The Maloney Amendment to the Securities and Exchange Act created an obligation for the brokerage industry to regulate itself, in addition to the regulation provided by the Securities and Exchange mmission.

There are others; the point is that they pretty effectively addressed the root problems of how risks were packaged (Glass --Steagall), how risks were to be revealed (disclosure requirements) and how nflicts of interest were to be managed (fiduciary obligations trump self-interest).

These principles were applied with great suess for some 70 years to the equities and bonds that had been at the root of the Crash of 1929 and the Depression of the 1930’s. The well thought out reforms of the 1930’s delivered literally decades of stability and still permitted both product and technology innovation.

With the exception of packaging risk (Glass Steagall), all of the 1930’s legislation has been strengthened over the years. Risks were re-bundled when Glass Steagall was reversed.

Ironically, Glass Steagall was so effective for so long in preventing systemic failures, human memories are so short and human beings are so greedy that we failed to remember why the law was passed originally.

Notice that current crash was not driven by equities or 1930’s style debt. The new securities at the root of the current crash did not exist in the 1930’s. The new securities packaged risk in new ways. Most of all, the new securities were not transparent in any dimension: they did not disclose either financial health or risk. Furthermore, the issuers of these new securities flouted the principal-agent problem.

The new securities fell between the jurisdictional cracks of regulatory authority: some were built on securities and business models that were expressly exempted from SEC jurisdiction; some were ambiguous. Is a credit default swap insurance, a mmercial ntract or a security? Issues you would like to decide on facts quickly became a matter of definition. When the definitions were ambiguous, the interested parties moved to mitigating circumstances and on to standing. Standing is all about who regulates such securities? Where is Federalism? The states regulate insurance. The clear classifications of the 1930’s are no longer.

So where are the solutions? The sub-prime mortgage business imploded because it was not transparent, because the risk was packaged in ways that mixed low risk assets with high risk liabilities, because principal ncerns overpowered agency obligations , and because jurisdictional

holes removed the threat of a p on the beat . Only a few high priests of finance knew what those securities ntained and whether they were likely to be repaid. They had the information to price the securities and they hoarded it.

Proposed regulatory changes are likely to address the issues of regulatory jurisdiction. The cracks between regulatory agencies are likely to be filled. Paul Volker’s proposal to re-instate Glass Steagall may well repackage risks and address the principal versus agency issues.

The transparency issues have hardly been mentioned, and probably will not be until the jurisdictional issues are resolved. Noheless, they deserve to be discussed. They are the most powerful potion in the prescription. The press has not picked up on the importance of transparency. It is not a sexy ic. It takes years to take effect. Powerful interests are against it. Powerful interests are against it because transparency so powerfully shifts the balance of power in the marketplace.

The SEC is quietly moving on dramatically increasing transparency for all issues filed with the mmission. The SEC is updating its public aess system with new technology that will make all filings machine readable. It is difficult to overstate the importance of this change. Machine readable SEC filings by issuers will democratize aess to financial information in fundamental ways.

The basic work to make financial statements, including footnotes, machine readable has already been done and the obligation for issues to submit in machine readable formats is phasing in.

The basic work to make securitized residential mortgage-backed securities machine readable has also been done, including the initial prospectus and the monthly remittance information. Preliminary work has been done on credit card-backed securities and automobile loan-backed securities. No US regulator has mandated machine readable transparency yet, and there is nsiderable resistance from the securitization industry.

In summary, there is much to be done and the wheels of reform are grinding slowly. There is a chance that the current reforms can deliver decades of stability and still permit innovation. It was transparency that allowed the reforms of the 1930’s to adjust to innovation in securities and trading. We need transparency to make the present round of reforms work and yet change, to “bend without breaking.”

From 1985 to 1993, Mr. Zoellick served with Secretary James A. Baker, III at the Treasury Department (from Deputy Assistant Secretary for Financial Institutions Policy to unselor to the

Secretary); State Department (Undersecretary of State for Enomic and Agricultural Affairs as well as unselor of the Department).