The advantages of loan secrecy are minimal
Had the company been open about its plans, it would have recognized the issues up front and worked with these groups to minimize the product’s negative impact. But working with old mental maps, the organization wasn’t willing to disclose what it needed to—and was unwilling to risk trusting the advocacy groups to become partners in introducing the product. The telephone company ended up supplying a feature, free of charge, that allows subscribers to block their telephone number from being identified. Instead of a number, the product shows “number unavailable.” Although the company had the technology to do this from the beginning, it thought the issue was a minor concern and not worth the slight effort required to implement the blocking feature.
Closed behavior is the response of those operating with a past orientation who need to maintain the status quo. The status quo offers a kind of homeostasis within closed minds or closed systems. Change creates an imbalance between what we believe and what we see occurring around us. A common defense mechanism to help us resolve this state of imbalance is the denial mechanism. For most of us, it is easier to deny information than to challenge long-held assumptions based on our history. People operating in a closed system are less trusting and less willing to share decision-making processes. They have a strong need for control. And they refuse to share their future plans lest someone “steal” them. In this age of industrial sabotage and high-level power plays, there might indeed be some justification in such a reaction. But when weighed against the possibilities of an open paradigm or future orientation—the benefits of sharing the wealth and the knowledge—the positives far outweigh any strategic advantage of secrecy. Secrecy seems pointless anyway. Today’s organizations have the ability to replicate what they see a competitor doing almost overnight. The advantages of secrecy, therefore, are minimal.
Based on historical data on defaults we can derive the fraction of the spread over riskless bonds for different rating classes and maturities, that is solely due to the probability of default and loss given default. The expected loss rate is derived from these two factors. Market participants who have a buy-and-hold perspective must decide on whether the current spread of a corporate bond sufficiently compensates for default and migration risk.