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The Buck Is Beginning to Break

Posted by Larry Doyle on June 25th, 2009 12:31 PM |

Investors in money market funds are generally under the assumption that those funds would always maintain a $1.00 NAV (net asset value). Well, investors should lose that assumption and prepare themselves for funds beginning to ‘break the buck.’ Do not panic, but let’s review developments in this $3.8 trillion sector of the market.

When markets were seizing up last September upon the failure of Lehman Bros., the U.S. Treasury provided a temporary backstop of money market funds so they would not break the buck and cause a “run on the fund.” Here is the Treasury statement from last September: Treasury’s Temporary Guarantee for Money Market Funds.

From that site, you will see links to other Treasury announcements on this topic. One of those links is Frequently Asked Questions About Treasury’s Temporary Guarantee Program for Money Market Funds. I strongly recommend investors review these FAQs. I specifically highlight the question regarding funds’ ‘breaking the buck.’

What if another fund in an investor’s fund family breaks the buck before this program starts? Is the investor covered?

The program provides a guarantee on a fund-by-fund basis up to the amount of shares held as of the close of business on September 19, 2008. The performance of a different fund, even one in the same fund family of the investor’s fund, doesn’t affect the investor’s fund’s eligibility. Investors should contact their fund to determine if their fund participates in the program.

The temporary guarantee was extended on March 31, 2009 as highlighted by this Treasury announcement: Treasury Announces Extension of Guarantee for Money Market Funds.

Well, investors should prepare themselves for this guarantee of money market funds to end and that certain funds will begin to ‘break the buck.’ One does not need to be a savant to see this development in a recent release from SEC chair, Mary Schapiro. Here is the full SEC Statement on this topic.

Let’s address a few critically important points . . .  (more…)

Is Ben Bernanke a Well-Intended Crook?

Posted by Larry Doyle on June 25th, 2009 9:12 AM |

Do the ends ever justify the means? Does being well-intended preclude one from committing a criminal act? If our legislative bodies do not possess the heart and courage to ask these difficult questions, can we assume they are implicitly approving them? Oh, what a tangled web trillions of dollars in financial losses will weave.

The intrigue behind the acquisition of Merrill Lynch by Bank of America may never be known. Will Congress pursue total transparency and integrity to compel all pertinent parties to be fully forthcoming? Would Congress go so far as to appoint an independent investigator with powers to subpoena Ben Bernanke, Ken Lewis, John Thain, Hank Paulson, Larry Summers, and Tim Geithner? Does the rule of law apply in our country only when convenient? Bloomberg provides a peek into this intrigue, Republicans Say Fed Set Late Report of Merrill Loss:

House Republican staffers said the Federal Reserve tried to control the timing of disclosures of rising losses at Merrill Lynch & Co. in the weeks leading up to its takeover by Bank of America Corp., according to a memo obtained by Bloomberg.

The memo, prepared by staffers for Republican lawmakers at a House Oversight Committee hearing tomorrow, cites what it identifies as excerpts from internal Fed e-mails to support the conclusion. Fed Chairman Ben S. Bernanke is scheduled to testify at tomorrow’s hearing in Washington.

The e-mails show that the Fed “engaged in a cover-up and deliberately hid concerns and pertinent details regarding the merger from other Federal Regulatory agencies,” Representative Darrell Issa, the panel’s senior Republican, said in an e-mailed statement.

Strong words by Representative Issa.

Cover-up? Who was negatively impacted by not revealing information on losses at Merrill Lynch? Existing Bank of America shareholders, who may very well have voted against this deal.

Hiding details from other Federal regulatory agencies? Such as? The SEC. The OCC. The FDIC, which would assume a significant percentage of losses on assets purchased by Bank of America. How did FDIC chair, Sheila Bair, feel about that prospect?

“Dear Ben, Strong discomfort with this deal at the FDIC, for all the reasons you and I have discussed,” Bair said in a Jan. 14 e-mail, according to the memo. “My board does not want to do this and I don’t think I can convince them to take losses beyond the proportion of assets coming out of the depository institutions.”

Who else was clearly reluctant to finalize this transaction? Bank of America chairman and CEO, Ken Lewis. He testified in February to New York State authorities about being pressured by Bernanke and Paulson. Lewis hedged his statement about Bernanke’s and Paulson’s pressuring him, if not outright threatening him, under questioning by Congress earlier this month.

Will we learn more today from Bernanke or will this chapter close without a full accounting of what truly happened? Will Congress pass the Obama administration’s proposal to make the Federal Reserve the uber-regulator to stem systemic risk? Might shareholder rights be trampled in the process? Do the ends justify the means? Do laws mean anything? Can one be a well-intended crook? So many questions.

LD

Turbo-Tim Takes ‘Indirect’ to a Whole New Level

Posted by Larry Doyle on June 25th, 2009 6:48 AM |

tim-geithnerIs it too much to expect increased transparency and integrity in the Brave New World of the Uncle Sam economy? Don’t expect to get a ‘direct’ answer from Turbo-Tim Geithner. Why?

Geithner just redefined ‘indirect’ buying in our U.S. Treasury auction process without a hint that this major piece of information was even up for review. Let’s look deeper into this sleight of hand. The Wall Street Journal sheds a little bit of light on this development in, Is Foreign Demand as Solid as It Looks?

The sudden increase in demand by foreign buyers for Treasurys, hailed as proof that the world’s central banks are still willing to help absorb the avalanche of supply, mightn’t be all that it seems.

When the government sells bonds, traders typically look at a group of buyers called indirect bidders, which includes foreign central banks, to divine overseas demand for U.S. debt. That demand has been rising recently, giving comfort to investors that foreign buyers will continue to finance the U.S.’s budget deficit.

But in a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners.

Why is this development so meaningful? Very simply, as the United States deficit explodes and Treasury auctions skyrocket, our funding needs will increase accordingly.

With BRIC nations (Brazil, Russia, India and China) threatening to purchase fewer Treasuries – if not outright sell our debt going forward – we become ever more dependent on finding other outlets for our bonds. If ‘indirect’ buyers, that is foreign entities, purchase fewer Treasuries, then it is not a stretch to envision our interest rates moving higher to attract other buyers.

Rather than waiting for a potentially unpleasant development, Geithner appears to have proactively used some artifice in redefining ‘indirect’ buyers to include not only foreign entities but also domestic buyers who place orders to purchase Treasuries through a primary dealer.

By broadening the definition, Geithner and team are able to disguise the true level of foreign buying.  When questioned on this redefinition, how did Tim respond?

Treasury officials didn’t respond to requests for comment.

So much for increased transparency and integrity. Why should we be surprised? Although healthy markets love transparency and integrity, tax cheats are not typically fond of these principles.

LD

Fed Statement: The Good, The Bad and The Ugly

Posted by Larry Doyle on June 24th, 2009 4:20 PM |

The Federal Reserve released its much anticipated statement on the economy this afternoon. What did we learn? Let me provide a synopsis of Bloomberg’s coverage of the  U.S. Federal Open Market Committee June 24 Statement:

The Good:

> Conditions in financial markets have generally improved in recent months.

> Household spending has shown further signs of stabilizing

> Businesses appear to be making progress in bringing inventory stocks into better alignment with sales.

> the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustained economic growth in a context of price stability.

> substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

The Bad:

> household spending remains constrained by ongoing job losses, lower housing wealth and tight credit.

> businesses are cutting back on fixed investment and staffing

> economic activity is likely to remain weak for a time

> prices of energy and other commodities have risen of late

In typical fashion, the Fed has attempted to cover all the bases and calm the markets. Were they successful? Not really. Why? The Fed remains between a rock (an exceptionally weak economy) and a hard place (providing excessive stimulus which will exacerbate fears of inflation given the explosion of the Fed’s balance sheet). The Bernanke Conundrum remains very much in place.

How have markets reacted to the Fed statement?

The Ugly:

> Bonds have sold off as the market was hoping the Fed may have provided a pleasant surprise in the form of an increase in its quantitative easing. With the selloff in bonds, interest rates moved higher by approximately 10 basis points (1 basis point is .01%) and the 10yr U.S. Treasury is now quoted at 3.7%.

> Equities also sold off with the DJIA and S&P 500 both retracing by approximately 1% after the Fed’s statement. The Nasdaq has held up given positive earnings from Oracle.

What does it all mean?

Sense on ¢ents believes interest rates will continue to work their way higher given the overwhelming funding needs for the foreseeable future (remember our funding needs this year are projected to be $3.2 TRILLION, a mere quadrupling of the last few years). As rates move higher, equities will gradually decline from current levels.

LD

Finra Talking Tough on Fraud, but ‘Talk Is Cheap’

Posted by Larry Doyle on June 24th, 2009 2:01 PM |

We can’t live in the past. It is not healthy to overly dwell on the past. Life is about the landscape in front of us. That said, unless we address, expose, and expunge the errors and omissions of the past, can we truly achieve the full potential of our future?

Our recent financial past has been filled with pitfalls and frauds. Wall Street’s self-regulator Finra is fully cognizant of investor concerns on this front. Finra recently launched a marketing campaign to address investor concerns. From Finra’s own website, Finra Launches Enhanced Investor Protection and Education Programs:

“Informing and educating investors is an essential component of our investor protection mission,” said FINRA Chairman and CEO Richard G. Ketchum. “The recent market turmoil makes it more important than ever that investors be aware of FINRA and the tools and resources that we provide to help them plan their financial futures, protect their interests and make informed investment decisions.”

The video, “Tricks of the Trade: Outsmarting Investment Fraud,” is a 60-minute broadcast-quality presentation on preventing investment fraud. Using profiles of victims and perpetrators, the video highlights the persuasion tactics that con artists use to defraud their victims and the basic tools investors need to defend against fraud. A trailer of the video is available at www.saveandinvest.org/tricksofthetrade; the full video will be released in July, but can be pre-ordered. “Tricks of the Trade: Outsmarting Investment Fraud” will also be distributed in public libraries throughout the country and shown at movie premieres in selected states.

Any legitimate initiatives to counteract fraudulent activities should be embraced. I welcome this initiative by Finra and hope it proves overwhelmingly successful. The Wall Street Journal expanded on this Finra initiative in writing, New Finra Ad Campaign Talks Tough On Fraud:

Do you think your broker a total fraudster? Afraid your retirement is in jeopardy?

Then meet Finra.

That still relatively unknown acronym stands for the Financial Industry Regulatory Authority, the self-funded watchdog for the brokerage industry. And in its new national advertising campaign, Finra is seeking to restore investor confidence by talking tough against the brokers that don’t “play by the rules.”

“If brokers don’t play by the rules, we can fine them, suspend them – even put them out of business,” a male voice says in one ad, which displays black and white images of ordinary Americans against the backdrop of solemn guitar music. “We believe the markets don’t work unless they work for everyone.”

Pretty tough talk!! We need some tough regulators in order to root out fraudulent activity. We also need regulators who will pursue total transparency and integrity at every turn. Will Finra carry this torch? If so, it will have to address its own reputation in the process. The WSJ offers more: (more…)

Fed Independence and the Constitution

Posted by Larry Doyle on June 24th, 2009 10:25 AM |

Are President Barack Obama, Ben Bernanke, Tim Geithner, and Congress about to overrun the Constitution of the United States?

President Obama is proposing to make the Federal Reserve the ‘regulator of last resort’ in order to handle issues of systemic risk. Will that move compromise the Fed’s independence and in turn violate the Constitution? I addressed this topic the other day in writing, “Don’t Call the Fed Independent.”

Adrian Van Eck of Van Eck-Tillman Advisories provides a chilling, historical perspective on this issue. I strongly recommend your saving and reviewing Van Eck’s commentary. The foundation of our country–that is, the United States Constitution– is in the crosshairs. Perhaps Barack and team may want to rethink the implications of this leg of their financial regulatory reform. What may be even scarier is if, in fact, they already have.

I thank my friend for sharing this patriotic post with me and I recommend you share it as well.

LD

Yesterday the President of the United States made a move to gain total power over the Federal Reserve.  This is very, very serious.  It worries me that Fed Chairman Ben Bernanke did not protest.  It may mean that he has done for the Fed and for America what he was born to do.  He blocked a second Great Depression from happening!  But it may also mean that it is time for him to go back to teaching college economics come January, because he is now showing few signs of being a natural leader and great executive at a time when that is what the Fed truly needs.  I’ll give you the details in a moment.  But first a bit of history.

Franklin Delano Roosevelt tried to gain power over the Fed in the Depression 1930’s.  He proposed adding the Treasury Secretary on the Federal Reserve Board and making him automatically vice chairman, instead of the New York Fed president.  Bear in mind that in those days the Fed chairman in Washington was seen as little more than a figurehead.  The real power in the Fed was then and had been since its founding the president of the New York Fed.  (That is the job that current Treasury boss Timothy Geithner held before moving to the Treasury.)  The idea of blending the Fed and the Treasury together was shot down at once by Congress… and FDR backed away.  In that time before television, members of Congress were then invariably highly qualified and well informed, rather than sometimes just being possessed of a nice-looking face and able to read speeches on a teleprompter written by staffers.  They knew that the Constitution gave full power over money to Congress and they denied the Administration, any Administration, any control whatsoever over the money supply.

The Constitution was written that way because the men who wrote it were intimately familiar with history, back through England to Rome and beyond.  They made the House of Representatives closer to the people by giving it two-year terms instead of four for the president and six for the Senate, whose members originally were chosen by state legislatures.  Congress had delegated some but not all of its power over money to the Fed when it created the so-called independent central bank.  Congress in 1913 made it plain that the Fed was fully under the control of Congress and would have to report to Congress on a regular basis.  When Paul Volcker was chairman of the Fed he used to taunt the members of Congress by telling them that if they did not like the way he was running their bank, they could fire him.  But then, he would say, of course you will not have me to blame any more and you will have to take the blame yourself when anything goes wrong.  They would turn away from him then and say no more.

Congress in 1913 had wanted to decentralize the so-called central bank, so it divided it into a dozen regional banks.  All of them were privately owned by banks in their district, and their boards of directors were set up in three classes to represent businesses and banks in each district.  The intention was that oil drillers would have a say in one district, cattlemen and meat packers in another, mining firms in a third, manufacturers in a fourth and so forth across America .  Their regional bank buildings were privately owned by these private banks and paid local real estate taxes.  The board members in Washington served 12-year terms, which were staggered.  They had to be from different districts.

The Fed was allowed to create money to buy Government bonds.  They kept enough interest to pay for their staff salaries etc. and paid much of the rest back to the Treasury voluntarily.  Today that payment from the Fed comes to billions of dollars a year.  This is why when the Fed largely financed World War II, FDR said we owed the money to ourselves.  Personally I think it is a better deal than we get from the Chinese communist government, which prints its own money to buy a trillion dollars worth of our Federal debt and gets big interest checks weekly.  It uses that money to undermine America in Asia, Latin America, Africa and Europe .

The money that the Fed loaned to banks and others during the recent emergency was the Federal Reserve’s own money, from its now-large reserves.  It did not come from taxpayers.  Each time a Congressmen makes a speech raving about the taxpayers paying for these loans I wince.  Their ignorance is disturbing, even frightening.  Yesterday when they hauled the Treasury Secretary before the Senate’s panel of financial “experts” (everything is relative and they are better than most of the rest when it comes to understanding money and banking) to discuss the president’s 88-page proposal of new laws concerning the Fed and the Treasury, I saw just how deep the ignorance now runs.  Most of the Senators asked questions about specific provisions of the proposed bill, mostly about a proposed vast increase in regulatory powers that should not even be in the Fed’s domain.

I watched coverage of this hearing on CNBC.  Larry Kudlow, an experienced senior member of their broadcasting staff whose Washington government experience prepared him to notice what I have been talking about here, commented on this central fact hidden away in the bill even before one lone Senator later nailed it to the wall.  That made a total of three of us who would instantly realize that this whole bill was filled with a lot of silly provisions designed to elicit comments from those in the media, from bankers and businessmen, from Senators and Congressmen… all to keep their eyes and their mind off the one lonely passage that in the FDR Administration shook the halls of Congress with anger and rage, until it was then dropped and forgotten.  One interesting note:  There was a break in coverage on the General Electric-owned TV network (CNBC), while a commercial was played.  When they came back, Kudlow was missing from the screen and had been replaced by a younger man, who was not interested in pushing Larry’s bull’s-eye-hitting criticism of the president’s bill.

Only one Senator brushed aside talk of the many new regulations the president was asking for.  He cut right to the central core of the matter.  He had only 5 minutes to speak and in that 5 minutes he called attention to what he said was clearly the heart and soul of this bill.  (And I agree with him!)  He correctly said that by forcing the Fed to get written approval from the Treasury Secretary when it loans money to a major bank, insurance company or other firm the bill in effect silently and secretly reduces the Fed from being a separate, non-Federal, largely private and de-centralized institution with a history running back to 1913 and turned it into a 100% controlled-by-the-president subordinate department of the U.S. Treasury, just another Federal agency.

Ninety-six years of history would be wiped from the slate if this bill passes as is.  Yet during hours of questions and answers before the Senate yesterday morning only the one Senator recognized what you just read here and as I mentioned he protested vigorously.  No other Senator followed up to protest or even comment.  That is probably because their questions are written down in advance for them by staffers and they are not equipped to seize a fresh idea and expand on it.  What’s more, from what I heard there are no Congressmen upset about this revolutionary passage in an 88 page bill.  And believe me this is revolutionary!  They are led by Barney Frank, who helped to cause the crash in banking and is now trying to cover his own failures up by shifting all blame to the Ben Bernanke and Fed.

But now I am going to tell you what really upset me yesterday.  Apparently the one man who has the intense historical knowledge of the Fed, of the FDR Administration, of the Great Depression and of the long history of imperial, royal, dictatorial and presidential misuses of government monies when they got their fingers wrapped around its control – and I mean of course the chairman of the Federal Reserve – did not so much as open his mouth and offer a whimper in protest at this provision.  Indeed we were told that when he loaned billions of dollars to AIG he had approached the Treasury boss and asked him to write his approval down on paper and sign it, before he sent money to AIG.  I can understand why Ben Bernanke would do that in the highly politicized environment of Washington .  But there is a gap as wide as the Mississippi River between the chairman doing that on his own privately and the proposed new law requiring him to do it.  And he should be shouting that fact to anyone who will listen, especially to Congress.

Now the president has said since the Fed chairman asked for that signed paper one time, lets make it official and require him to get such approval in writing from the Treasury boss every time he or any Fed chairman (and the man who hungers for the job is hovering at the president’s elbow each day) wants to make such a loan.  I have no doubt that Larry Summers has told the president he will defer to him in each instance, in effect putting the president in charge of the Fed when it really counts.  (For what it’s worth, there are more than a dozen women of both Parties in the Senate, and I cannot imagine them voting to confirm Summers as Fed Chairman, after he was fired as president of Harvard University for suggesting that women professors are really not smart enough to be professors.  Of course, he regards himself as the smartest man in America and he probably does not think that men are smart enough to be professors either, so that would mean he also looks down on Ben Bernanke.)

This would put the president himself where the Founding Fathers and several generations of Congressmen made sure no president, not even Franklin Delano Roosevelt, would be allowed to go.  If the current Fed chairman does not see the importance of saying no to this, then he should forget about another term at the helm of the Federal Reserve and go back to teaching at an Ivy League college.  He has done a great service to his country until now, and if this bill is passed as written and put into effect with a passive, mild leader sitting at the desk of the chairman of the Fed, America will be turned away from its heritage and inched down a road toward dictatorship where all of history says the Congress itself will be reduced to a shadow of its former self.  If you doubt me, take a good look at what the socialist dictator of Venezuela has already accomplished and what he intends to do in the next year.

Adrian Van Eck

Van Eck-Tillman Advisories

Is the Market Ever Wrong?

Posted by Larry Doyle on June 24th, 2009 8:00 AM |

The market is often wrong, right?

Human psychology, being what it is, drives individuals to believe they are always right, or at least most often right. What highlights this instinct? The fear of  an actual loss. What do I mean?

Most individuals do not want to readily admit that they may be wrong, especially when it comes to money and finance. This human frailty leads individuals to make financial decisions which are often not in their best interest. Let’s navigate and address this psychological aspect of trading and investments.

During my trading career on Wall Street, I often encountered traders who were paralyzed by the market price action. This paralysis occurred during periods of significant volatility. Often, I would hear these individuals utter 4 simple words which should never enter the lexicon of finance: “the market is wrong.”

In response to that statement, I would ask them “if the market is wrong, then why aren’t you either buying or selling it to capture the difference in value between the market’s ‘wrong’ level and the ‘right’ level?” Those conversations were often short lived. Most traders would voice their opinion about the market — while not acting on it — in order to defend their ‘marks,’ that is, the price at which they were carrying trading positions/investments.

Nobody likes booking a loss or actually recognizing a loss. However, the reality of life is that many times we are faced with that unpleasant phenomena. The last two years provides a wealth of evidence on this front. I am reminded of it again this morning in a Bloomberg story, Home-Price Recovery in U.S. May Be Undermined by Appraisals:

There may be another culprit scuttling a U.S. housing recovery: low home appraisals.

Flawed appraisals are derailing real estate sales and depressing values across the U.S., the National Association of Realtors said yesterday as it reported that existing home prices declined 17 percent in May from a year earlier.

“It’s pointing to thousands of delayed or canceled transactions,” Lawrence Yun, chief economist of the Chicago- based Realtors group, said in an interview. “We’ve had a massive inundation from members saying this is a big problem.”

In so many words, Mr. Yun is ‘talking his position’ and indicating that the market is ‘wrong.’ A market may be deemed to be ‘oversold,’ ‘overbought,’ or otherwise ‘mispriced.’ However, those assessments are opinions and not fact. Very simply, a market is never wrong.

When home values come in below the sales price, that’s not the appraiser’s fault, it’s a reflection of the market, the Appraisal Institute, a Chicago-based professional group that represents more than 25,000 appraisers, said in a statement yesterday.

“We take offense with the notion that an appraisal is only good if it happens to come in at the sales price,” the group said. “That mentality helped cause the mortgage meltdown to begin with.”

Let’s look at this phenomena from the opposite standpoint, that being a rising market. Is the market right? Are you, the investor, as smart as you may think? Never confuse brains with a bull market.

As difficult as it may be, individuals should eliminate human emotion and psychology from financial decisions. The market is neither ‘wrong’ nor ‘right.’ The ‘market is the market.’

LD

Bernie Madoff Deserves Special Treatment

Posted by Larry Doyle on June 23rd, 2009 4:13 PM |

Bernie Madoff

I may stand outside of the mainstream, but I believe Bernie Madoff deserves special treatment when his sentence is handed down on June 29th.

No surprise that Bernie stays true to his cowardice form in begging for mercy from the court, as the Wall Street Journal offers Madoff Seeks Leniency in Sentence:

Bernard Madoff asked a federal judge on Tuesday to sentence him to as little as 12 years in prison after he pleaded guilty earlier this year to operating a massive, decades-long Ponzi scheme.

Talk about chutzpah. Wow!!! Does Bernie think he was involved in a pedestrian white collar financial scam? His lawyer, Ira Sorkin, also provides comic relief in his request:

In a letter filed late Monday and made public Tuesday, Ira Sorkin, a lawyer for Mr. Madoff, asked U.S. District Judge Denny Chin to sentence his client to less than a life sentence.

“Mr. Madoff is currently 71 years old and has an approximate life expectancy of 13 years,” Mr. Sorkin said. “A prison term of 12 years — just short of an effective life sentence — will sufficiently address the goals of deterrence, protecting the public and promoting respect for the law without being ‘greater than necessary’ to achieve them.”

In the alternative, Mr. Sorkin said a sentence of 15 years to 20 years would effectively achieve those goals. “Indeed, such a range will appropriately eliminate concerns for disparate treatment among similarly situated nonviolent offenders,” Mr. Sorkin said.

Is Mr. Sorkin serious? Let’s review his statement: ” . . . eliminate concerns for disparate treatment among similarly situated nonviolent offenders.”

Who has a concern that Bernie will be treated worse? What crimes and criminals bear any resemblance to the Madoff fraud?

Nonviolent offenders? When will our judicial system properly dispense justice for emotional abuse inflicted upon victims in the course of white collar crimes? Why has our judicial process allowed white collar criminals to define their crimes as nonviolent and thus deserving of lessened penalties?

I strongly believe that white collar crimes and criminals are treated far too gently in our judicial sentencing process.

Thus, if I were to sentence Bernie Madoff, I would first want to know how many investors were in his fund. If there were 1000 investors, I would recommend one life sentence per investor, that is, 1000 concurrent life sentences. Why?

I believe each investor is now in an emotional jail cell and likely will be for the remainder of his/her life. Thus, this sentence is the only fair sentence to address that emotional pain and torture.

I do not consider myself a vindictive individual. In fact, I consider myself honest, charitable, and fair. I would welcome hearing the rationale as to how true justice may otherwise be dispensed. That sentence strikes me as fair for all involved.

I have to believe there is a special place in hell for Bernie Madoff.

LD

Increasing Chinese Protectionism: A Real ‘Prisoner’s Dilemma’

Posted by Larry Doyle on June 23rd, 2009 2:25 PM |

Can we all just get along?

As the global economy continues to struggle, tensions within the international trade arena increase. To wit, today the United States and European Union fired a salvo back at a BRIC nation–none other than our largest creditor, the People’s Republic of China. Bloomberg highlights, E.U, U.S. Complain at WTO Over Chinese Export Curbs:

The European Union and the U.S. complained at the World Trade Organization about Chinese export restrictions on raw materials such as magnesium, their third joint complaint against the Asian nation.

The EU and the U.S. said they filed a request for consultations at the WTO in Geneva today, setting off a period of discussions with China aimed at resolving the dispute. If talks fail, WTO judges can be asked to rule on the issue.

“We are most troubled that it appears this is a conscious policy to subsidize Chinese industry,” U.S. Trade Representative Ron Kirk told journalists in Washington. “China is a leading global producer and exporter of the raw materials in question, and access to these materials is critical for U.S. industrial manufacturers.”

If this complaint were filed in the midst of a strong, robust global economy, one could dismiss it as a ‘one off situation.’ I believe it represents a far more important issue. I view this complaint as another shot in the ongoing ‘serve and volley’ being played out between China and the United States.

To this point, most of the shots have been directed from the BRIC nations toward the United States. While Obama has put forth a few statements to ‘buy American,’ the BRIC nations have aggressively promoted a move away from the U.S. dollar as the international reserve currency.

The crux of the Chinese-U.S. relations continually revolves around a very simple yet complex issue: trust!! (more…)

Wall Street Arbitration or ‘Puttin in the Fix’?

Posted by Larry Doyle on June 23rd, 2009 11:07 AM |

How would you like to bring a case in which the counterparty is not only defendant, but judge and jury as well? Probably not, right?

Welcome to the world of Wall Street arbitration.

Investors, when opening an account with a bank or broker, are compelled to sign an agreement stating that any dispute will be adjudicated via an arbitration process. On its surface, arbitration is not a bad process. It is utilized in many industries. That said, for arbitration to be uniformly fair the arbitrators must be disinterested parties. Does that happen on Wall Street? Come on, be serious!! The deck is stacked against investors in arbitration. Why?

Arbitrators obviously need to have a thorough knowledge of the financial industry in order to pass judgment. Beyond that, though, Wall Street arbitrators and arbitration have lots of issues and embedded conflicts.

Let’s take a harder look at the arbitration process. The Wall Street Journal provides a brief overview, Securities Arbitration Is Faulted:

Attorneys who represent investors have asked the Securities and Exchange Commission to drop a requirement that a securities-industry representative sit on arbitration panels.

Yes, that statement right there highlights the embedded conflict in the arbitration process. Let me simplify. Say, for example, an investor brings a complaint against his Morgan Stanley broker. On the arbitration board will sit a representative from Goldman Sachs. Simultaneously, right down the hall an investor brings a complaint against his Goldman Sachs broker. On the arbitration board sits a representative from Morgan Stanley.  Level playing field? Come on.

Investors who open a brokerage account generally sign away their rights to sue the broker or the firm for bad advice. They have to settle disputes through arbitration run by the Financial Industry Regulatory Authority, which is funded by the industry.

What do we learn here? The case obviously will not be arbitrated in your lawyer’s office and similarly not in the offices of the broker’s attorney. Who holds court? The Financial Industry Regulatory Authority, FINRA, which is funded by Wall Street. Conflict of interest? At least on the surface it would appear as such. For those unfamiliar with FINRA, this is the organization which has yet to issue their 2008 Annual Report and dumped $647 million in Auction Rate Securities either shortly before or as the ARS market was failing. Feeling confident yet? Me neither. (more…)






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