It's a twofer today for those of you willing to indulge me by reading on...
The securities and exchange commission (SEC) found that 76% of main street investors (the public) don't know the difference between a representative of a broker-dealer and a registered investment adviser. Score one for the stockbrokers who have successfully managed to fool the public into thinking they are investment advisers. These guys (and gals) are good at what they do, which is trick the public into thinking they get paid for giving advice when, in fact, they do not. In plain English from a recent article in the Investment News: "The broker-dealer rep does not get paid to give advice and is not licensed to provide advice, and hence is not an "adviser". Such reps get paid when they sell a product: thus they are salespeople."
It would appear obvious that when Broker-Dealers (Wachovia/Wells Fargo, E.D. Jones, A.G. Edwards, Morgan Keegan, Merrill Lynch/Bank of America, Morgan Stanley and numerous others) refer to their salespeople as financial advisers, financial counselors, financial planners, and financial consultants that they are intentionally trying to mislead the public. (My own personal favorite is the guy I met recently who referred to himself as a "financial health coach". Sometimes you just have to laugh at the snake oil salesmen and the lengths they will go to hide behind pithy self-made descriptions!) Personally, I think their titles ought to reflect what they really do so that the public isn't misled. How about "financial services sales representative"? Or perhaps "vice president of mutual fund and variable annuity sales"? After all, when is the last time a "vacuum cleaner adviser" knocked on your door looking to advise you on your need for a new vaccuum?
Of course Wall Street owns the regulators (it's called regulatory capture by the academics) and is able to twist and turn them however they choose. Which is why Big B-Ds are now allowed to also register as RIAs and dual register their brokers. The problem, of course, is that the public has no way of knowing when the stockbroker has his registered adviser hat on and is giving actual objective advice (is that even possible with a juicy commission at stake?) as opposed to trying to sell product. Just ask yourself, when is the last time your broker representative put you into a no-load mutual fund that paid him nothing for doing so? Exactly! After all, there is a reason why fewer than 5% of all financial advisers are fee-only! Fee-only advisors are required to provide sound advice over a period of years before they will make what a broker can make in a single transaction.
Dictatorships confiscate property from individuals as a matter of course. The dictator takes what he wants when he wants it. The American constitution specifically protects property rights, or at least it did until recently. One recent and particularly egregious example (but certainly not the only one) involves the shameful manner in which the current administration stole from hospitals, pension funds, and nonprofit endowments - among others - in order to enrich its political supporters. Sound like a wild, inflammatory accusation? I'll walk you through it and you be the judge.
The Chrysler near-bankruptcy provides a very telling case in point of what can happen when a tyrannical government acts for the "good of (some of) the people". The Chrysler auto bank-debt restructuring committee consisted of four big banks and Elliott Associates. The committee proposed that collateralized senior debt holders should be paid in full (since the debt was collateralized by all of Chrysler's assets). Four hundred years of contract law (going back well into English history) and the American Constitution stood behind the committee's proposal. (There is a well-defined pecking order in bankruptcies and restructurings with senior, secured creditors getting paid before unsecured creditors and unsecured creditors getting paid before stockholders. It is that well-defined pecking order that allows lenders to calculate the risk they assume when lending money to companies which need capital to grow or restructure.)
Unfortunately for the senior lenders to Chrysler (whom were investing on behalf of pension funds - including Indiana's PERF, hospitals, and non-profit endowments among others), the Obama administration decided to reward its political supporters by leapfrogging the unsecured creditors to the front of the line. The unsecured creditors represented the UAW's pension fund and post-retirement health-care-related claims.
It was widely reported that the Obama administration gave the creditors an ultimatum, telling them to accept 32 cents on the dollar for their bonds or be named and blamed by the president of the United States as the cause of Chrysler's bankruptcy. Meanwhile, the administration was offering unsecured creditors (the unions) 60 cents on the dollar for their pension and health care claims, standing hundreds of years of contract law on its head and shredding the U.S. Constitution's protection of property rights in the process. Resisting debt holders, who are required by law as fiduciaries to the hospitals, pension funds and non-profits whom they represented, to do their utmost to act in their investors best interests, received threatening phone calls from governors, senators, and congressional representatives to apply additional pressure. It has also been reported that lenders received threats of SEC and IRS investigations, according to Grant's Interest Rate Observer, if they resisted accepting the government's "generous" offer. (Anyone else picturing Chavez seizing private assets down in Venezuela and strong arming private industry into submission? Anyone else remembering the history of the "Worker's Revolution", in the darkest days of the rise of the Soviet Union, as private industry was wiped out by centralized government planning?)
You, my dear reader, are sadly mistaken if you don't think any of this will eventually impact you more than it already has (remember, it was our "Big-Brother" government that got us into this mess in the first place with more than 50 years of fiscal and monetary mismanagement accompanied by a pernicious mission creep that threatens to completely destroy a once vibrant free-market economy). One of the most obvious unintended consequences of the theft is that the cost of money will rise as lenders require higher interest rates to compensate them for government's capricious "taking" of their property. Credit is the life blood of our economy; there is no economic growth, or only very slow economic growth without abundant credit. A lack of economic growth means a lack of job creation, and that means millions of Americans will remain unemployed due to Big Government's oppressive actions, which are creating a chilling effect in the credit markets even as the Federal Reserve attempts to stimulate lending through its irresponsible spending of taxpayer's money. The bill for the great rape of the American Constitution and American contract law has not yet even begun to be calculated.
