Just read the last letter; everything else has been edited SIPC not responsible to Madoff adviser clients

When I first read of the Securities Investor Protection Corp.’s petition to the Department of Justice for trustee approval and jurisdiction, my response was complete disbelief. From where would the SIPC derive responsibility in this matter?

My question, while I awaited further information on the matter, was whether the clients were clients of the Madoff broker-dealer or of the adviser. The news provided little distinction on the subject, and in this case, the distinction is critical. Your Jan, 26 Dan Jamieson article about [the New York- and Washington-based Financial Industry Regulatory Authority Inc.’s] authority in the Madoff matter [‘Finra had authority in Madoff matter, legal eagles say”] scared the hell out of me, as the SIPC claim of jurisdiction seems to have become the tail that now owns the dog. How indeed can the SIPC reimburse money to a non-member firm’s clients? To whom are claims payable if there are no clients on the books of the Finra-registered broker-dealer?

Why isn’t the industry suing the SIPC to cease giving away essential assets to uncovered claims? It is not the member firms’ fault that the investors were unprotected, and since a portion of my personal revenue has helped fund the SIPC for the past 20 years, I absolutely reject the notion that there is a responsibility of the SIPC to pay claims to investors that couldn’t bother with defining such a detail.

Not only do I now get to pay for another portion of the bailout, I get to watch the regulators that failed to regulate tell me more about how I can no longer serve my clients’ interests. Thanks, Bernie.

T. Owen Good CFP, ChFC Portland, Ore.

Studies could show the value of advisers

I couldn’t agree with more with your Jan. 12 Just Thinking column, and I totally loved the idea of the “Got advice?” campaign. In fact, we talked internally about stealing your idea and using it in one of our weekly Blue Summit Reports. You

wouldn’t mind, right?

Our industry should not take blame for our current economic situation. If anything, we kept our clients from taking on stupid debt: home equity lines of credit and funky-monkey, interest-only, two-year fixed to variable, negative-amortization, etc., loans. Why don’t we see if there is a university that would do a study to see if those with financial advisers were having a lower rate of foreclosures than do-it-yourselfers? They could also study whether those with financial advisers have more-adequate insurance protection and estate-planning protection, because we are the watchdogs for these issues as well. Now, that could be great for our industry.

Judith L. Seid Certified financial planners
Blue Summit Financial Group Inc. La Mesa, Calif.

Ticked off by statement about the uptick rule

Thank you for your Jan. 26 article about reinstatement of the uptick rule. Please note that I have a concern with your statement that reinstating the rule would eliminate short selling.

Traditional short selling is a healthy function of orderly markets’ alerting market participants to companies the shorts identify as having “problems.” However, since the elimination of the uptick rule, highly leveraged short-sellers with access to cheap credit have been able to gang up on their targets, sometimes even colluding with other shorts. Once they throw their weight behind a name and go short, without any uptick rule in place, they are able to drive the price down to unreasonable levels. After that, they buy them cheap and cover their short position, making a handsome profit. That’s what would be referred to as a “free lunch” — which should not exist in an orderly market. Those of us who make a living as financial advisers need an orderly market, and that is my request.

You stated: “The basic argument is that traders are restricted from betting that stock prices will decline, the market will stop falling, or at least stop falling so quickly.” That’s an inaccurate statement. There has always been short selling, and the market can fall without it. If market participants are flooding the market with more sell orders than buys, guess what? It’s going to go down.

So as a financial adviser, I do not disagree with short selling; I ask for reinstatement of the uptick rule to make for an orderly market.

The American Bankers Association in Washington agrees that computer trading (decimalization) has created implementation problems, so its question is how to modernize or update the rule. This is similar to [New York-based Hennessee Group LLC’s Charles] Gradante’s quote about the decimalization of trading. Reinstating with revisions is the way to go so that the market can no longer be manipulated. To have an orderly market, manipulation shouldn’t/couldn’t occur.

To reaffirm my position, during a conference call with a hedge fund manager, after my query, the manager stated that they haven’t a problem with the uptick rule. He’d lived with it before. The manager had more difficulty living with last summer’s changing of the short-selling rule. He called it regulatory risk. Thus, banning short selling isn’t the answer. Short selling worked before 2007; it should continue to work in an orderly market. Reinstatement of the uptick rule with provisions is what needs to happen, and soon.

Thank you for your article and for listening.

Sarah Young Fisher

President

Kuntz Lesher Capital LLC

Lancaster, Pa.

Celebrity no substitute
for practical thinking

[Robert] Shiller’s proposal is a joke, right? The punch line is coming in the next issue, right?

Frankly, I’m embarrassed for InvestmentNews. How could you even think about publishing such a preposterous idea [“Professor: Feds should pay for advisers for the masses,” Feb. 2]?

It’s amazing to me that the media (and government) gives public figures such carte blanche. Let’s be honest — if an unknown expert were to suggest that our government should subsidize advisory fees for the public, there’s no way in hell you would have published their proposal.

It’s unfortunate, but we live in a country that is now being guided by the ideas of whoever has the most well-known voice. Little or no consideration is being given to the validity if the ideas themselves — it’s all about the name recognition of the “expert” whose opinion is offered. How we move from there to more-practical thinking, I don’t know. If I wasn’t laughing so hard, I’d be crying. It’s really sad how people are thinking these days.

Brian A. Schreiner

Vice president

Schreiner Capital Management Inc.

Exton, Pa.

I think the recent brouhaha about executive incentive compensation programs should motivate the public to look closely at some of the incentives that motivate our elected representatives.

It seems to me that the recent indignation of our representatives inside the beltway is extremely hypocritical, particularly when one considers that the economic problems with which we now struggle have been caused to a significant extent by the long-term effects of policies they implemented.

Those inside the beltway have obviously benefitted politically by favoring the long term increase in home ownership supported by the continual expansion of the Community Reinvestment Act. And it seems those inside the beltway have benefitted from the lobbying activities and political contributions provided by Fannie Mae and Freddie Mac, and the mortgage lending and home building industries, while they should have been weighing the possibility that excessively liberal *ortgage lending was creating a house-of-cards in the financial markets (do a key-word search: Fed Governor Edward Gramlich). Further, the objectivity of “our” representatives inside the beltway should be seriously questioned *hen one realizes many high ranking members of Congress have personally (and very directly) benefitted from a Country*ide Financial mortgage lending program called the “Friends of Angelo”. (Also, do a key word search on: Herb Moses Fannie Mae).

Also, the SEC has come under significant criticism for not addressing the excessive financial leverage, for allegedly not understanding the role of hedge funds in the crises, and for not better regulating financial derivative products. “Our” representatives inside the beltway should not escape a significant share of the blame on the regulatory issue. “Our” representatives turned a blind-eye toward the issue of hedge fund regulation when better hedge fund regulation was strongly recommended by past Chairman of the SEC, William Donaldson.* The regulatory agencies operate in an environment of limited jurisdiction. “Our” elected representatives are charged with oversight of the regulatory agencies, and through legislative initiatives they can change the jurisdictional limitations of the regulatory agencies. Is it possible that the wealthy and powerful hedge fund industry was able to influence our electe* representatives and thereby avoid an appropriate level of regulation? (Even after the strong evidence of hedge fund risk provided the ’blow-up’ of Lo*g Term Capital Management in the Spring of 1998). 

To me the attitude (and attempts to deflect responsibility) by those inside the beltway seems very hypocritical, because it seems “our” representatives’ errors have been so clearly influenced by moneyed interests, lobbying efforts and political contributions provided by the same individuals and institutions they are now using as ‘whipping-boys’.

* Many observers claim that Chairman William Donaldson was forced to resign from his SEC Chairmanship beca*se of his views on the desirability of increased hedge fund regulation (see, http://www.404.gov/news/testimony/ts071504whd.htm and http://www.nytimes.com/2005/06/01/business/01wire-sec.html?ex=1275278400&en=d89d9d8be5440394&ei=5090&partner=rssuserland&emc=rss ).

Related Topics: Letters To The Editor