Letters

Call for more regulation, legislation is misguided

The editorial that appeared in the July 13 issue of InvestmentNews, “Congress must enact regulatory reforms carefully,” encourages Congress to pass more regulations and legislation to somehow protect the investing public and the financial system in general.

This is misguided, and a prescription for further disaster.

The key to solving the financial crisis is coming to a clear understanding of what caused the crisis in the first place.

Look no further than the Federal Reserve as the main culprit, artificially manipulating interest rates for the better part of a century, causing the “booms” and “busts” that the uninformed think are endemic to capitalism.

Add in the Community Reinvestment Act and the arm-twisting applied to various banks by “community groups” to lend funds to people who couldn’t pay them back.

Then Fannie Mae and Freddie Mac introduced unlimited moral hazard into the lending system by buying any loan that could be made.

There is your crisis, in a nutshell. And all this activity was done under the watchful eyes of regulators, to whom you would grant more power and oversight?

Here are my prescriptions for our ailing economy: total elimination of the Federal Reserve; restoration of sound, gold-backed money, whose value is protected by Congress, per the Constitution, rather than diluted by government debasement; bankruptcy for all failing enterprises; no bailouts; no more deficit spending by the federal government; payback of all government debt; and economic freedom, rather than ever more layers of bureaucratic central planning from Washington.

This country could then enjoy real prosperity again.

Your editorial already accedes to a supposed need for further government regulation and control over the economy.

The question as you framed it centers only on “what” and “how much” regulation will be just the “right answer.”

These calls for further regulation only play into the hands of those who wish to be our masters.

Why not advocate economic freedom once in a while, rather than further central planning by those who aren’t fit to plan a picnic, much less an economy?

Mark Richards

Principal

M.W. Richards Financial

Albuquerque, N.M.

Finra’s stance problematic regarding leveraged ETFs

The Financial Industry Regulatory Authority Inc. has taken the position that leveraged exchange-traded funds are unsuitable for retail clients if the client holds the position for longer than one day.

Such an ill-thought-out position presents three problems.

The first problem relates to the fact that financial instruments are tools. It isn’t the tool that is inherently evil, it is how the tool is used.

Consider a retiree who has $100,000 to invest.

He wants to establish a low-risk allocation to the S&P 500 of just $10,000, or 10% of his portfolio. He could buy $5,000 of a 2X leveraged S&P 500 fund.

The remaining $5,000 of cash for the normally $10,000 position can be held in money market funds. This is a perfect example of such a tool being used properly.

Alternatively, what if the investor was using a leveraged-inverse fund to hedge a concentrated position?

The second problem relates to Finra’s qualification of not longer than one day. This clause would seem to limit use of such instruments to day trading.

I thought the verdict on day trading came nine or 10 years ago. Finra’s position almost seems to encourage day trading.

The third problem relates to how Finra defines “retail” investor.

Does its definition include an individual investor whose account is being professionally managed? Does its definition include an individual investor whose account isn’t being professionally managed, but who has a $10 million net worth?

If the answer is yes, then leveraged ETFs could only be used by foundations, endowments and retirement funds.

Finra’s position almost seems to be that these things are too risky, but it is OK for charitable organizations and retirement assets to lose money in them. There is a comforting thought.

Who is thinking up this stuff?

Todd C. Ganos

Principal

Doolittle & Ganos

Investment Counsel LLC

Carmel, Calif.

Merrill, BofA should have been ‘left to go under’

I read the story “Can Sallie Krawcheck restore Merrill’s luster?” which appeared in the Aug. 10 issue.

It is evident that Kenneth Lewis, Bank of America Corp.’s chief executive, is a master of obfuscation and meaningless gibberish with his statement, “Customer behavior is evolving, requiring new products, services and delivery methods.”

If he means by their “behavior evolving” that brokerage customers of Merrill Lynch & Co. Inc. and BofA are out the door in droves with what is left of their tattered securities portfolios, then I may begin to comprehend his drift.

It was many of those “new products” that no broker, banker, or customer fully understood that helped bring on this calamity.

Does he mean by “services” a broker who is thoroughly trained by personal background in ethical behavior and formal education to fully understand the real meaning of “risk” and is hired to do more than just dish out the cookie-cutter products during a “delivery method” the equal of slam-bam, thank-you-ma’am phone conversations?

Ms. Krawcheck jumps from job to job every six months, full of sound and fury, signifying nothing.

There is no luster to restore at Merrill.

Its carefully nurtured “reputation” has been shredded to dust by its own thundering herd of greedy, blood-sucking managers who got undeserved bonuses in the millions while they let customers drown in inane advice from “advisers” who wouldn’t be hired by the corner garage to wash your car.

Merrill’s PR game is kaput. Ms. Krawcheck will find that she can’t put lipstick on a pig.

She will be gone within the year, as she reaps another whirlwind.

Merrill should have been left to go under, as well as BofA. Both have been relegated to steerage and third-class citizenship.

My prior experience with BofA’s management of personal trust accounts for several years up to 2004 confirmed that the company’s portfolio advice was all computer-driven, usually dreadfully wrong, rife with conflicts of interest with their in-house funds, and delivered by faceless individuals who were all under 25 and wet behind the ears.

Maybe Ms. Krawcheck should start by bringing about some needed reform and just plain common sense to the firm’s asset management arm. Merrill is yesterday’s dead battery.

Laurence C. Day

Partner

Agora Investment Management

St. Louis

Related Topics: Letters To The Editor