Wall Street takes a lot of the blame for the meltdown that started in October, 2007 and rightly so. But, don’t forget the politicians. They control the agencies that control the Wall Street marketing machine. It is no accident that Wall Street companies spend more than $300 million per year on lobbyists who make sure regulations favor the industry and not investors. This incestuous behavior has been going on for decades. Don’t expect it to go away.
By now you probably have a pretty good understanding of the Fiscal Cliff and how it may impact you. In essence, it is a combination of expiring tax cuts and proposed budget cuts that if implemented as is, could tip the U.S. economy back into recession. The Fiscal Cliff also has a lot of implications for investors who are impacted by increased taxes on dividends, interest, capital gains, and estates. Virtually every personal tax reduction since 2001 will be rolled back to previous, higher rates.
Can you afford to wait for politicians to legislate some type of compromise or should you be taking a more proactive approach? Continue reading →
Late last week the U.S. Senate, following the House passed a weakened version of the “Stop Trading on Congressional Knowledge” (STOCK) Act, which aims to eliminate congressional insider trading. The bill doesn’t address the political intelligence industry, which collects non-public information from members of Congress for trading purposes.
Senate Majority Leader Harry Reid (D-Nev.) took a page out of House Majority Leader Eric Cantor’s (R-Va.) playbook by forcing the Senate to approve a watered-down bill that will supposedly ban congressional insider trading.
Wall Street lobbied hard to block the political-intelligence provision and found friends in Reid and Cantor, both of whom receive large campaign contributions from Wall Street firms. Cantor stripped the stronger version of the political intelligence and anti-corruption enforcement provisions and sent the watered-down House bill to Reid, who did much of the same to the Senate version.
Insider trading is illegal and morally wrong. Unless of course if you are a member of Congress. Then it is just “honest graft” which sounds innocent enough. Honest graft allows members of Congress to enrich themselves in a way that is legal and for which a politician would say is nothing more than taking advantage of the money-making opportunities that might arise while holding public office. Honest graft is as much an oxymoron as “harmless embezzlement.”
Should we allow college athletes to bet and gamble on games in which they are playing? Is it acceptable for Tiger Woods to wager on PGA tournaments in which he is competing? Of course not. It would undermine the integrity of the game. People would scream with outrage that these athletes have a stake in the outcome and staggering financial conflicts of interest. But this is exactly what we are allowing politicians in Washington to do. Currently, members of Congress are allowed to introduce a piece of legislation and then trade on the company’s stock that will benefit or be hurt by this legislation. Insider trading in Congress is not only routine but apparently legal. Committee members frequently participate in sweetheart IPOs and make trades in stocks on the companies they regulate.
If you are a federal judge who owns more than $25 worth of stock in a company, you are required to recuse yourself from any case involving your company because of a possible conflict of interest or lack of impartiality. Yet, we allow members of Congress who own millions of dollars of healthcare or energy companies to write bills that affect their respective industries they regulate and subsequently make trades based on what’s in these bills before this information is released to the public.
Two or three lines in an energy bill can have a massive effect on a company’s stock price. If politicians possess this information and are allowed to trade on it before anyone else, they have an unfair and powerful advantage. It damages the integrity of the markets; it undermines any sense of fairness; and it puts the average investor at an extreme disadvantage.
The much ballyhooed (by politicians) “Stop Trading on Congressional Knowledge” (STOCK) Act would be an attempt at prohibiting Members of Congress, employees of Congress, and all federal employees from using any nonpublic information derived from the individual’s position as a Member of Congress or employee of Congress.
Both chambers almost unanimously passed the STOCK Act, but there is still no law. And according to experts even if it becomes law there appears to be sufficient holes in the STOCK Act such that those who wish to circumvent it will be able to do so. For instance, House Majority Leader Eric Cantor stripped a provision requiring those that collect financial information and sell it to Wall Street to register the same way lobbyists do, which means it’s still okay to provide insider legislative knowledge to ultra-high-net worth investors.
With a Congress like this who needs Bernie Madoff?
Obama wants to expand the SEC’s budget by a few hundred million dollars so it can increase the frequency of financial advisory firm audits and expand other oversight functions. This sounds more like political posturing than a real solution to a major problem.
Auditors find problems after the money is long gone. What investors really need is a solution that prevents the money from disappearing in the first place.
One low cost solution would be to require full transparency by financial advisors and the firms they work for. Then provide an easy, free way for investors to validate the accuracy of information that is provided to them by advisors.
This will not happen. Wall Street spends millions on lobbyists fighting regulations that would mandate full transparency. There is a lot of information Wall Street does not want investors to have – for example, information that exposes deceptive sales practices. Bad advisors and scam artists will continue to flourish as long as Wall Street is successful withholding information from investors.
Keep in mind, the SEC and FINRA let this happen. What are your thoughts?
There is no question Occupy Wall Street has gotten a lot of publicity – most of it bad.
One of its goals is to increase the awareness of the American public about the greed and corruption that permeates Wall Street. It has not accomplished this goal. Its message has been obscured by tents-in-the-park.
Unfortunately, it does not stand for a clear-cut cause that people can rally around. Its message is rapidly becoming old news – even if it has a float in the Rose Parade.
If Occupiers are fed up with Wall Street they should have shined their spotlight on company executives who made millions when they decided to rip-off the American public. They should use public data to publish a Top Ten List. The spotlight should focus on the executives’ decisions, compensation, and the damage they did to their own clients and the American public.
Occupiers should also shine their spotlight on the politicians who pass regulations that protect these executives from prosecution for their crimes. Wall Street executives can commit crimes and their companies pay fines without admitting any guilt.
According to the SEC it does not have the legal resources to prosecute the executives of large companies. Its solution is to levy fines that become a cost of doing business for the executives’ companies. Consequently, there is no downside for corrupt executives.
Occupiers should be focused on making executives and politicians accountable for decisions that damage the American public. This is a cause worth fighting for.
Wall Street greed and corruption will not go away until the incentives to cheat investors have to be removed and executives who commit criminal acts are sent to jail.
In modern America, there are two ways to achieve this financial goal.
One is the traditional way. Come up with a great idea. Develop a strategy for achieving goals. Raise some capital. Execute the strategy. Make changes as necessary. Raising capital is iffy because most investors do not want to risk capital on unproven ventures. In fact, most entrepreneurs have to give up a lot of equity to get the capital they need to develop an idea into a business that has revenues and profits.
Then there is the non-traditional way. Become a politician and vote for regulations that apply to the people who elected you, but not you (Insider Trading, IPOs). Then use the exemptions to become a millionaire.
Also, people will give you money, lots of money, to help you get elected. And, you do not have to pay them back. They are willing to fund your campaign to get favorable treatment when you are elected. Their payback is regulations that enable them to make more money and retain more of that money after tax.
Politicians don’t give up equity to raise money, they give up their integrity.
The political route seems easier and safer. Maybe universities should start offering classes on how to become a millionaire by getting elected to public office.
If Wall Street companies admitted guilt, they would lose a large number of investor lawsuits.
For example, Citigroup sold investors $1 billion of a CDO that contained toxic subprime mortgages. Investors lost $700 million. Citigroup made $160 million from fees and bets that the CDO would fail. Citigroup agreed to pay a $285 million fine without admitting guilt. If you deduct the $160 million, the net cost to Citigroup is $125 million, a fraction of the $700 million of investor losses.
If Citigroup admitted guilt they would still have to pay the fine and no doubt face a class action lawsuit from the investors who incurred the massive losses. Because they admitted guilt they would be in a very difficult position to defend their actions.
New laws should establish a fiduciary standard for all companies that sell investments to investors. The standard already exists for Registered Investment Advisors, but does not cover brokerage firms and stockbrokers.
Guess which type of company is ripping off investors on a regular basis? That’s right the broker/dealers.
Wall Street spends a lot money fighting a fiduciary standard for its brokerage activities.
Unfortunately, politicians have to fix this problem. That is not going to happen. They are paid large sums of money by Wall Street companies to maintain current regulations that protect companies at the expense of investors.
It is also unfortunate that investors do not have an organization that is strong enough to convince politicians to change the regulations.
I have been blogging for months about the SEC’s practice of letting Wall Street companies pay fines for committing fraudulent acts.
Finally, Jed Rakoff, a U.S. District Court judge rejected a $285 million settlement between Citigroup and the SEC. Citigroup was accused of mortgage fraud – in this case, a $1 billion CDO that cost investors $700 million.
The SEC claims it does not have the staff or resources to prove Citigroup committed fraud in a prolonged court battle because Citigroup has deep pockets and a lot of attorneys.
I have two problems with this position. Apparently big Wall Street companies can commit fraud and get away with it because they employ a lot of high powered attorneys. Second, companies don’t commit fraud, the executives who run the companies commit fraud.
These executives make millions from fraudulent acts and IF they are caught their companies pay fines to regulatory agencies that do not want to take them on in lengthy court battles.
What a crock. The SEC claims a company committed fraud, but does not prove its claim. The company pays a fine, that is small percentage of its profits, without admitting it did anything wrong – after all investors only lost 70% of their money in a short time period. I guess the SEC protects investors from bad guys if they have limited resources to pay attorneys.
Something stinks here. When something smells this bad I believe politicians are involved. Dig a little deeper and I bet the SEC’s position is a result of pressure that is exerted by politicians to protect the executives who run Wall Street companies. These companies bought protection by spending more than $300 million per year on lobbyists.
You can trust Wall Street when executives start going to jail.
It should not be Occupy Wall Street it should be Change Wall Street. And change does not start in New York City it starts in Washington D.C.
“Changers” must identify politicians who protect Wall Street interests and convince them to pass legislation that puts teeth into regulations. Or, vote them out of office.
Stop companies from paying fines for executives without admitting guilt. Greed-ridden corporate executives are guilty of committing crimes that have devastated millions of people and not one of them has gone to jail.
Why should the executives worry? They can rip-off investors with impunity thanks to their protectors in Washington. Like I said change starts in Washington.
Come on people. How are you going to accumulate assets for retirement if you can’t trust the system that invests your money. Use your votes to get rid of corrupt politicians. Elect politicians who will crack down on Wall Street greed and corruption.
You can’t blame Wall Street for the low retirement savings rates of most Americans.
You can blame Wall Street for the bubbles, scams, and fraudulent activities that have reduced the value of the savings accounts of most Americans. Or, how about the pressure Wall Street analysts exert on American companies to earn more money. Thousands of companies have converted their defined benefit pension plans to 401k plans to transfer investment performance risk to their employees.
Now in a recent article, MSN’s Today Money reported 25% of Americans expect to work to age 80. And, 75% expect to work during their retirement years. These Americans are acknowledging it is more important to save a specific amount of money than it is to retire at a specific age. But, the consequences are horrific, especially if there are health problems.
The two primary ways to accumulate assets are savings and performance. Once you achieve a critical amount of assets, performance is more important than savings.
Where do you go to get performance? That’s right, Wall Street.
Wall Street’s robber barons are the executives who make millions ripping off Americans who have to defer retirements, take part time jobs, and reduce their standards of living.
Robber barons belong in jail. Politicians belong in adjacent cells. Then Americans can expect on ethical advice and services that help them accumulate more assets for retirement.