Wednesday, July 28, 2010

Selective Economic Realityuptake Inhibitor (SERI) and Fiduciary Attention Deficit disorder (FADD) caused officials at Fed and UST to BFD...

Denial of economic reality and inattention have led to the discovery that certain officials at the Fed and US Treasury may have SERI and FADD; these oft undiagnosed maladies have so far escaped experts at the AMA American Media Association and some say especially prominent in the Financial Media - perhaps itself suffering from a severe case of APACOI Avoidable Principal Agent Conflicts of Interest.

As for BFD - officials would not comment, since they have yet to go through any formal fiduciary training; with a bag packed already for the all important summer beach reading.

Officials would neither confirm nor deny reports; noting that that is standard procedure as concerns most if not all economic data.

Taxpayers, of all stripes continue biding their time doing what they've been doing for 2 years now - sitting in the WAITING Room...however patience is wearing a bit thin these days.

All they want are the honest appraisals from elected politicians. Tax payers recognize that politicians are not magicians; but someone better TELL the Fed and UST that they are held to the expert standard - so far less than expert.

NY Times on Fed Bailout aka Debt has a due date - Today to October 2009 to March 2010 - reporters could and should talk to each other

The NY Times reports today
In Study, 2 Economists Say Intervention Helped Avert a 2nd Depression
by Sewell Chan

Last Fall October 16, 2009
Bailout Helps Fuel a New Era of Wall Street Wealth
by Graham Bowley

This past Spring March 2, 2010
In New York, Wall Street Bailout Softens the Blow of a Recession
by Patrick McGeehan

If not for the handout, excuse me aid, to members of a certain Federal Reserve Bank district EAST of the Hudson - as the last two above articles describe - there SHOULD have been the shrinkage if not demise of several less-than-socially-useful-SPECULATIVE-paper-trading gambits with US Taxpayers' money.

Jobs were saved, Depression was averted.
When the total real costs per job saved is calculated we may see that the PROPER policy question to have addressed should have been and remains:

"Is it better to save the economy (expressed in jobs, votes) OR to save the system - of CAPITALISM, unfettered capitalism as some (including many of the same recipients of that handout) NOW promote?" When most adherents would agree it's about "creative destruction", a free market economy of independence, ideas, innovations, such that those "animal spirits" can flourish, enjoy insouciance not fret over arbitrary actors' narrow preferences.

We wrote earlier that Arnold S should fight the Feds like a real man - link here

And for Mr Zandi's and Blinder's study published today - it appears not to cast scrutiny as basis for ANY comparison to the underpinnings of the so called "robust" US economy 2004 to 2007 BEFORE the so called financial crisis interventions.

Namely that US economic growth was spiked by the artificial, steroidal, TRANSIENT, yet lingering DEBT-HAS-A-DUE-DATE impact of the HOUSING asset bubble; simply watched by Greenspan and later Bernanke and Paulson, Geithner; if not enabled by inaction, inattention, and a BFD by each of them.

BFD by Greenspan, Bernanke, Geithner, Paulson
BFD - when a person in a position of fiduciary responsibility has skills and does NOT or fails to use them.

One of several tid bits Zandi/Blinder point out that the aftermath of the early 90's recession was about a negative 6% was shaved off economic growth. So my observation is WHAT DID MR GREENSPAN, BERNANKE, GEITHNER AND PAULSON OBSERVE FROM THAT EVENT? Appears little to nothing - except this - the early 90's problemo was like the sniffles; the current financial situation is arguably cancer and it's not shrinking; there ain't no miracle drugs.

They should be prosecuted - for the HOUSING bubble; not applauded for rescuing that which they watched AND created!

Ending the BFD on the US Taxpayer's dime one easy to read blog at a time.

Wednesday, July 21, 2010

After $9.5B (not a typo) - when might a fund's (or all such funds') 12b-1 "marketing and service" fee paid to brokers itself signal a fiduciary duty?

$9.5 Billion was paid in 2009, and in 2007 over $13 Billion of 12b-1 fees were paid by mutual fund investors (through the artifice of deductions from shares' net asset value) - true - according to the article below from Investment News.

Today Investment News reports that the SEC is proposing capping the decades old 12b-1 fee at 25 basis points annually. The SEC is also proposing to allow broker dealers to charge less than 25 bps hoping to stimulate competition. See story link here

A fund with a 12b-1 fee, compared to the same fund but different share class is more, make that the MOST expensive share class - according to nearly all such studies. However, under certain situations and time periods - especially shorter time periods a fund with a 12b-1 fee may be less expensive, than an up-front load share class, except that in many if not all instances a CDSC (Contingent Deferred Sales Charge) may apply for redemptions within a specified time period; with exceptions made for certain types of accounts (IRA's) or depending on the share holder's age or reason for the "early" redemption.

A hallmark of fiduciary duty is continuing and comprehensive advice.
Yet, the descriptive language the SEC attaches to 12b-1 is continued "marketing and servicing" perhaps enabling an exploitable and compensable loop hole for said marketers and servicers in contrast to investors' expectations.

Somewhat confusingly, in near the same almost Siamese breath SEC's Schapiro "The term “12(b)-1” would no longer exist, said Mary Schapiro, chairman of the SEC, during the meeting this morning. Additionally, mutual fund companies would be required to disclose the marketing and service fees, and the ongoing sales charge in every prospectus, shareholder report and investor transaction

Or as a recent comment excerpt stated -
A fee is a fee and the 12-b-1 keeps many brokers in business. Without it, there will have to be another fee by another name. So what? A fee by any other name will be just as sweet (or repugnant). If we need to all rise to a fiduciary standard, then the fee will have to be higher, or as the result of the laws of scale, small accounts will not receive adviser service.

To which I say, no matter the size of the account - if a broker / financial adviser is holding themselves out as - something better than Vanguard or Schwab or another provider - then they should welcome a higher standard / duty owed to that customer.
Anything less is not supported by the facts (i.e. reps and warranties). And to the extent they are also getting paid - by whatever facility or term of art to describe the facility - to market and service the continued holding of certain fund's shares -then the smell test points to "fiduciary duty".

If continued payment for "marketing & Servicing"

Then, in the alternative, due to said continued "marketing & servicing" and receipt of payment therefore - there may arise?

A(nother) duty to perform - a customer suitability determination. Why not? It seems to fit the facts.

If certain brokers / advisers find this objectionable perhaps they would like to SHOW us the evidence that PAST recommendations equalled or outperformed on a risk - adjusted basis a passively invested account benchmark...get ready for an onslaught of? Little to NO such evidence.

And if not for sales load-waived, NAV purchases for family accounts - would the same broker / advisor recommend a 12b-1 fund to their parents? Not many, if at all.
What's good for the family is at least as good for your customer; no matter the size of the account.

When it comes to "marketing and servicing" NON 12b-1 fees funds compared to...
- is there an actual, some might ask palpable difference between the way a (or most) brokers, financial advisors "market and service" NON 12b-1 fee funds shareholders compared to 12b-1 fees funds?

Then permutations arise - how does (or should) a broker address marketing and servicing a customer who owns BOTH 12b-1 and NON 12b-1 fee funds?

How does a broker, financial adviser square that with other reps and warranties?
How is the policy and procedure consistently applied to all of a brokers' or broker dealers' customers accounts?

Ending the siesta on the US taxpayers' dime one easy to read blog at a time.

Sunday, July 18, 2010

Why Judge Jones should wait to approve SEC Goldman settlement

The Wall St Journal reports here
that the SEC commissioners split, along party lines, over the nature and amount of the settlement agreed to by SEC and Goldman.

But that's not the story - HERE'S THE REAL STORY, that should not be foreclosed upon prematurely:
When Goldman settled - they settled everything but not everyone, they left Fabulous Fab, to fend for himself. So, when Fabulous Fab has his constitutionally protected right to defend himself - Fabulous Fab may:
1) offer new evidence
2) recant prior evidence
3) explain in more detail 1 or 2 or
4) may strike a deal with the SEC to settle, combining 1, 2 and 3 above.

In particular, Fab was not a lone ranger, he was 27. He was supervised, by someone or some systems in place or which should have been in place at Goldman.

The first is who was reviewing and approving his email messages and related content attachments?

There is NO DOUBT that higher ups at Goldman knew or should have known his activities or omissions; the question then becomes what did they know and when did they know it? And what is the connection, if any, to their evaluations of Fab and promotion to director?

Ending the siesta on the US taxpayers' dime one easy to read blog at a time.