Madoff adviser clients not SIPC’s responsibility

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.
The article, “Finra had authority in Madoff matter, legal eagles say,” which appeared in the Jan. 26 issue scared the hell out of me, as the Washington-based SIPC’s claim of jurisdiction seems to have become the tail that now wags 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 isn’t 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 by 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.

Tim Good
Registered representative
LPL Financial
Portland, Ore.

Studies could show the value of advisers

I couldn’t agree more with the Jan. 12 Just Thinking column, “Financial advisers, promote yourselves,” 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 shouldn’t take the blame for the economy. 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 advisers were having a lower rate of foreclosures than do-it-yourselfers? They could also study whether those with advisers have more-adequate insurance protection and estate-planning protection, because we are the watchdogs for these issues as well.

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

Ticked off by statement about the uptick rule

Thank you for the Jan. 26 article, “Market participants split on 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 is what would be referred to as a “free lunch” — which shouldn’t 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 is 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 is going to go down.
I don’t 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 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 don’t have a problem with the uptick rule. He had lived with it before.
The manager had more difficulty living with last summer’s changing of the short-selling rule, calling 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.

Sarah Young Fisher
President
Kuntz Lesher Capital LLC
Lancaster, Pa.

Celebrity no substitute for practical thinking

The proposal by Robert Shiller, a professor of economics at Yale University in New Haven, Conn., is a joke, right?
How could you even think about publishing such a preposterous idea [“Professor: Feds should pay for advisers for the masses,” Feb. 2]?
It is amazing to me that the media (and government) gives public figures such carte blanche. If an unknown expert were to suggest that our government should subsidize advisory fees for the public, there is no way in hell that you would have published that proposal.
It is 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.
How we move from there to more-practical thinking, I don’t know.

Brian A. Schreiner
Vice president
Schreiner Capital
Management Inc.
Exton, Pa.

Look at motivations of elected representatives

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 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 benefited politically by favoring the long-term increase in home ownership supported by the continual expansion of the Community Reinvestment Act. And it seems that they have benefited from the lobbying activities and political contributions provided by Fannie Mae of Washington and Freddie Mac of McLean, Va., and the mortgage lending and home building industries, while they should have been weighing the possibility that excessively liberal mortgage lending was creating a house of cards in the financial markets.
Further, the objectivity of our representatives should be seriously questioned when one realizes that many high-ranking members of Congress have personally and very directly benefited from a Countrywide Financial Corp. mortgage lending program called the “Friends of Angelo,” a reference to Angelo R. Mozilo, the former chairman and chief executive of the Calabasas, Calif., company.
Also, the Securities and Exchange Commission has come under significant criticism for not addressing the excessive financial leverage, for allegedly not understanding the role of hedge funds in the crisis and for not better regulating financial derivative products. Our representatives shouldn’t escape a significant share of the blame on the regulatory issue.
Our representatives turned a blind eye toward hedge fund regulation when better such regulation was recommended by former SEC Chairman William H. 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 those agencies. Is it possible that the wealthy and powerful hedge fund industry was able to influence our elected representatives and thereby avoid an appropriate level of regulation?
The attitude and attempts to deflect responsibility by those in Congress is hypocritical because it seems that our representatives’ errors have been so clearly influenced by moneyed interests, lobbying efforts and political contributions provided by the same individuals and institutions that they are now using as whipping boys.

Bill George
Founder and director
Blue Sky Research Services LLC
Encino, Calif.

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