Category Archives: Financial Markets and Institutions

Financial Advice and Critical Thinking

The requirements for a fiduciary focus on putting your clients interests first. The investment industry fights legislation to make this a law applicable to everyone.

Even a novice critical thinker would conclude that they fight this potential law because it will reduce their profits – which it would.

So it’s no surprise to read in today’s Politico’s Money Money by Ben White the following: Continue reading Financial Advice and Critical Thinking

Pension obligations

It’s getting harder for GM to get pension obligations met. The current strategy by management seems to be to declare bankruptcy, revise the contracts and dump the pension on PBGC, the federal Pension Benefit Guaranty Corp. This may be the correct strategy to allow the company to compete and survive moving forward, but a lot of hardworking people, and to a lesser extent us taxpayers, and going to get hurt.

Risk takers

There is a wise use of derivatives for hedging, and a risky use of derivatives for speculation. There must be speculation in the markets to provide liquidity, however, those that are speculators should fully acknowledge that. Where individuals and companies get into serious trouble is by starting out with the idea of risk reduction and either through greed or error, they morph into risk takers.

Cooking the books

AT&T didn’t consider that World Com could be cooking the books and undertook an expensive and debilitating strategy to compete with fiction. Many investors didn’t consider that Tech Stocks were being pumped up by greedy investment banker’s. Etc. Etc. Etc.

Where are you believing books that are cooked? Is it possible that something you believe isn’t true and your being manipulated? Think hard…this is important.

A savings account like a bond

Think of a savings account like a bond. One loans money to a bank (essentially a bond) and they get paid interest. The interest rate reflects the risk of not getting repaid. There is no risk with a bank unless the entire country collapses, but with corporate – including junk bonds – there is risk and the interest rates reflect that. The banks are getting a free pass on paying the proper amount of interest given the risk they are taking as the government is subsidizing them with insurance. The underlying problem is that the FDIC insurance corp. doesn’t collect in premiums from banks what it should to cover the losses. Therefore it’s taxpayers that are left with the risk.

The birth of a new company

The birth of a new company is something we should encourage in every possible way. But in doing so we should be very careful not to allow the system to become ripe with fraud as it was in 2000. If a company is viable, it will find it’s way through the process. But if not, it should die with the loss in the hands of the venture capitolist’s, not the public markets. They are the ones that took the risk, they have to take the losses. Yes?