Your Money Perpetually At Risk

The other day I heard on TV that the oil industry spends about $80 million on lobbying a year in Washington, D.C. $80 million should buy you a lot of access. If you listen to the comments on TV these days, we are to believe that the $80 million is spent so they, the oil industry, can enlighten the members of congress as to the difficulties the oil industry faces without the necessary helpful legislation provided to them by the congress in the form of tax incentives. This may be all true, but will we ever get away from importing foreign oil if the Federal Government continues to subsidize the oil industry? As I have said before, money talks and bullshit walks.

Now let us take a look at the securities industry. The financial geniuses on Wall Street are always thinking up new products to sell to investors. There are products sold that are aimed at the retail or smaller investor and there are products created that are strictly for the very wealthy and the institutional investors. With new products being turned out all the time, the investing public needs to keep up on just what they are investing in. I told a story in a previous posting about a fixed income product that was sold to the retail investor in units like shares at an offering price of $10 per unit. One round lot or a 100 shares was a $1,000. But, the underwriting commission for each broker that sold this product was 50 cents a share. This may not sound like a lot of money, but when you know that out of that $1,000 dollar investment $50 dollars is coming right off the top, you are now paying $1,000 dollars for an investment that is going to be worth at its best at $950 dollars. In bond language, you have just paid 5 points for this bond product. No mutual fund that I know of charges 5 points in commission to buy into a fixed income mutual fund. This kind of crap went on in the brokerage business 20 years ago. Whether the New York Stock Exchange has tightened up its rules on listing such crap, this I do not know. In the worst example of this kind of product, investors saw their investment go to zero in a period of six months. This kind of thing should not happen if proper oversight is exercised. In my opinion, without the NYSE listing this product would have never sold as well as it did. Where does the buck stop? We know the investors' buck stopped at zero.

What is the point? It does not make any difference which industry we are talking about, money that buys that industry access plays a role in the kind of legislation that comes out of congress. Every industry is pushing their agenda, and the industries that are well financed usually get their point across. Money talks.

In the case of the securities industry, I think the congress better do the right thing and use their own common sense. Without regulation, oversight and auditing, we are going to continue to have financial crisis all the time. Greed is like a weed that just keeps on coming back. Regardless of whether you pull your weeds or spray them with Roundup, they just keep coming back. The securities industry for the most part does the job it is suppose to do, but there are those members of the industry that do not care to play by the rules. As a result, if they are located in key positions, they can bring ruin to a whole sector of the securities industry. As I have said many time before, the mortgage bond market meltdown could have been avoided had there been proper oversight and auditing. Without the securitization of the mortgage industry, the sub prime mortgage bond business and the subsequent meltdown never gets off the ground.

When you realize that there are trillions of dollars invested in mutual funds as well as public and private pension funds on the line every day, the importance of regulation in the securities industry should become quite obvious. Yet, because money talks to congress and they listen, this vast number of dollars representing America’s savings, remains perpetually at risk.

Stay tuned.