EDGAReView

Credit rating agencies are a “broken safety net” according to two young engineers who have created a public site where the collective intelligence of an online community can be harnessed to create more accurate ratings and where nothing is hidden.

Developers Toby Segaran and Jesper Andersen conceived their FreeRisk application as a huge open data store of financial data taken primarily from company filings. FreeRisk encourages users to generate algorithms for analyzing credit risk. The results are public – unlike the “black box” algorithms of the major credit rating agencies who keep their competitive processes private. Given the abject failure of the major credit agencies preceeding the sudden financial meltdown, the Freerisk founders say “risk management is too important to society to be an arcane subject or competitive advantage.”

We at EDGAR Online expect to see more and more of this type of end-user applications that leverage XBRL data. We were particularly impressed with the process FreeRisk has to pull XBRL files directly off the SEC feed, parse them and turn them into a graph. The graph store also contains the GAAP hierarchy, allowing users to view fiancial statements as a tree with whatever data they contain.