A lot of entrepreneurs and innovators talk about how an industry, application, process, or general behavior is “broken”. Broken does not mean inefficient, but rather hints at a structural flaw. A disruptive innovation will generally target a broken industry, looking to replace the broken parts instead of repairing them. These blog posts discuss systems that are seriously broken enough to need public attention.

I just finished a one month gig at a technology investment company, where my role was less about financial analysis than it was about market feasibility. Yet that one month did clue me in to several structural flaws in the business of finance that, if others knew about, had never before come to my attention. As a tech guy I generally assume all trades are like technology, where a programmer can generally search google for a forum thread with the code snippet he wants, he can call his friend at another development shop for help, he can even call Adobe or Microsoft for first-hand consulting from the product source. Tech people don’t lie about preferences or features because they know they’d get called out on lying by the technology blogosphere. In other words, information in the technology sector is generally freely available, you know where to find it, and you are called out when you make stuff up.

Finance, on the other hand, is relatively broken. Simple acts like finding a specific piece of information, such as a company’s competitors and the size of those competitors, is ridiculously hard unless you have the right paid logins to proprietary databases. Unlike technology where developers are held accountable for the precise features of their applications, finance professionals seem to live and die by misinformation and concealment. And even if a firm has good internal information practices, information does not move between firms. Many web companies publish free code or data via APIs, whereas finance firms will often publish nothing because all that knowledge is proprietary. Therefore, 90% of financial research and analysis is redundant in that someone out there in the business waters has likely already performed your research for someone else.

What makes finance broken is not necessarily the allocation of labor and information, but the transaction cost of getting information from point A to point B. We complain that technology job boards like odesk or elance do not have adequate quality control mechanisms for someone seeking work to match to someone seeking a worker. Yet a financial opportunity: research requests, equity needing brokering, a law suit needing allegiances, fraud needing press, financial press needing organization: all of this is disbursed between lunch and dinner conversations of small fragmented financial executives- or distributed via brute force via cold calls- seldom captured in any standard organized form. Finance is broken because the cost of A to find B is not just a matter of organizing A and B but the years of trust, the acquisition of credentials, and approval process and the human interaction behind matching A to B.

A startup at a high enough level acts like a company and a company at a high enough level is making financial decisions, yet there is still a great deal that finance can learn from startups. Most of what makes finance broken is not the technology but the trust networks, and the manner in which financial trust networks have no virtual corollary. If the financial data, the trust network, and the complicated incentives schemes of finance could be brought online like facebook activity, I would have more enjoyed my investmetn experience.