Whistleblower law firm Labaton Sucharow released a survey on July 10, 2012 that showed 25% of Wall Street executives see wrongdoing as a key to success. The survey included 500 senior executives in the United States and the UK. 30% also said their compensation plans created pressure to compromise ethical standards or violate laws. The survey confirms something I already believed. Wall Street has to cheat to win because it cannot meet the investor expectations it created with slick marketing and personable financial advisors. Continue reading
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?
Al Lewis wrote a great article this weekend that described the various ways Washington aristocrats make money while in office. Or, in a lot of cases, how aristocrats make even more money when they leave office to become lobbyists who influence the votes of their former colleagues.
Why do I call politicians aristocrats? They remind me of medieval lords and ladies who live off the sweat and efforts of their subjects. They also pass laws, insider trading, IPOs, Social Security, health care, that govern the activities of their subjects, but they exempt themselves from the laws.
Perhaps our politicians should not criticize their counterparts who run South American countries.
More importantly, how can we count on corrupt politicians to fix the corrupt business practices on Wall Street? Aristocrats protect Wall Street robber barons for large sums of money. Unfortunately, we can’t count on them. They are just as corrupt as the robber barons.
Our ancestors moved to America to get away from corrupt aristocracies. Guess what? They are back and their actions impact you.
What are you going to do about? The answer starts in Washington, not Wall Street.
As head of the Office of Management and Budget, Peter Orszag played a powerful and key role in shaping public policies such as the first stimulus package and the recent health-care reform legislation. Recently he has stepped down as OMB director to accept a senior position in the investment banking arm at Citigroup, an institution that received massive infusions of taxpayers’ dollars.
In his new role at Citigroup, Mr. Orszag’s annual salary alone has been ball-parked in the millions of dollars. This ability to effortlessly glide through the revolving door between Washington and Wall Street seems improper in the very least and demonstrates the potential for corruption and abuse. Do you wonder why the recent financial reform that was suppose to rein in reckless risk-taking by the very same institutions that brought this country to the brink of collapse, lacks teeth? Do you wonder why a law that was suppose to do away with “Too-big-to-fail” has had little effect? Why did our politicians accept such lax financial reform when a staggering majority of Americans wanted far greater and extensive measures ?
Mr. Orszag no doubt understands how the positions he takes and the policies he helps shape while in government will affect his future career options. The potential for such huge paychecks and the prospect of a big paying job on Wall Street and elsewhere undoubtedly influences government policy-makers positions on key legislation that impacts its respective industries. It’s no wonder our politicians are unable or unwilling to get any sensible legislation passed that would benefit the masses instead of a select few special interests.
It seems that news sources have been inundating us with the opinions of economists that have stated if the Bush tax cuts are not maintained that we will all be in trouble. These economists all claim to be “experts” at determining where the economy is going. These are the very same experts that did not predict the 2008 financial crisis and did not foresee the current mess we are in. But now these experts are telling us to listen to them or else. I have to confess that I have studied economics and I haven’t found it very useful for prophesying, and I don’t believe economists are very good at predicting anything with the exception of the past.
An ominous side effect of the tax deal being approved is the lost of the United States’ triple A bond rating. In a Reuters headline, Moody’s warns of possibly reducing U.S.’s Aaa rating because of Tax Deal, the rating agency said it may lower the U.S.’s Aaa rating if the compromise on the Bush tax cuts and the extension of unemployment benefits becomes law. The agency’s concern is the increase debt levels, which would make a rating reduction more likely in the next 12 to 18 months. Then again, Moody’s, along with others, was giving sub-prime mortgage-back securities triple-A ratings that clearly did not deserve such a high grade. Just another alleged “expert’s” opinion.
Wall Street is an interesting study if you think about it. On one hand, they spend millions of dollars a year in advertising, promoting their services to investors. I’ll forever remember one commercial where a couple was sitting in their living room talking about how safe they felt because they had a bull (in their living room) behind their money. Yep, that’s real comforting! The financial firm was trying to sell the concept of stability, safety, secureness, and trustworthiness.
On the other hand, Wall Street spends millions a year on lobbyists for various bills and initiatives that protect their own interests and drive through legislation that is not investor friendly.
Here’s a great article that goes more in depth into this topic. Uninformed investors don’t stand a chance against the great and almighty Wall Street marketing machine.
You need investment advice to help you achieve your financial goals. Your need creates a sales opportunity for licensed sales reps, advisors, planners, brokers, and agents. It also opens the door to unlicensed reps selling scams.
Wall Street companies know how to take advantage of your need. For example, its companies produce “feel good” advertising messages that are designed to create the perception of exceptional competence and integrity. After all, that’s what you want to hear when you select a financial services firm and advisor.
Then there is the “other” Wall Street that has spent hundreds of millions of dollars on lobbyists who route money to the politicians who control financial industry regulations. Wall Street doesn’t like uncertainty. It spends a lot of money to make sure regulations favor companies and not investors. Based on trillions of dollars of recent Wall Street engineered losses, the politicians are supposed to be enacting new regulations to prevent similar meltdowns in the future. Don’t hold your breadth. Wall Street is sending additional millions to politicians on committees to defeat those regulations or water them down so they have no significant impact on companies’ ability to make money from your assets.
Which Wall Street do you believe? The Wall Street in the advertising messages or the Wall Street that sponsors anti-investor lobbyist activities? Both can’t be true. This is a core Wall Street conflict of interest - whose interests come first, investors or companies. There is a lot of evidence that it is company interests and that creates additional risk for Wall Street clients.
Where is the financial industry overhaul we were promise? We wonder why no meaningful legislation has been passed to protect investors and taxpayers from another banking collapse. All you need to do is look at the amounts that members of congress received in just the 2007-2008 election cycle from commercial banking interests to understand why our people in congress are dragging their feet on reform. The figures have been provided by the Center for Responsive Politics. Here is the ten most enriched on that infamous list:
1. Obama, Barack (D) $3,249,366
2. McCain, John (R) $2,283,197
3. Clinton, Hillary (D-NY) $1,512,063
4. Dodd, Chris (D-CT) $563,894
5. Coleman, Norm (R-MN) $264,345
6. Cornyn, John (R-TX) $239,648
7. McConnell, Mitch (R-KY) $234,600
8. Chambliss, Saxby (R-GA) $198,473
9. Bachus, Spencer (R-AL) $193,300
10. Roberts, Pat (R-KS) $171,290
This is not the complete list, and these amounts do not even include what politicians received from insurance, real estate and other financial interests. For a comprehensive list go to www.opensecrets.org. With our politicians receiving this kind of money from commercial banking interests why would they ever pass sensible legislation to protect us?
The Department of Labor recently withdrew a new rule that would have allowed financial advisors, who acknowledge they are fiduciaries and work for fees, to give advice to 401k participants.
As Jason Roberts, an attorney at Reish and Reicher, said, “It seems like someone in Congress gave the DOL an order to stand down.” In my opinion, Wall Street lobbyists lined the pockets of key politicians on the right committees to get the rule withdrawn. Billions of dollars of fees and commissions were at stake if Wall Street’s legions of commission sales reps did not have had access to the trillions of dollars that are owned by 401k participants.
Wall Street sales reps already have access to plan trustees who are supposed to be smarter than plan participants. But, the trustees’ lack of knowledge makes them easy targets for sales reps from broker/dealers and insurance companies. The fiduciary advisor rule created a major risk for Wall Street because the advisors would be in a position to influence the investment decisions of plan participants and critique the decisions of the trustees. Billions of dollars of fees and commissions were at stake. There is no question plan participants need help allocating assets, managing risk, selecting funds, and making strategic changes over time. They do not have the knowledge to do this work themselves. How important is this rule? It will determine the standard of living for millions of participants during retirement and their financial security late in life.
So what is the solution? Computer programs? Cookie cutter solutions based on participant ages? The solution is the fiduciary advisor who is compensated to advise participants with large and small account balances.