Both risk averse and yield-hungry investors who have created a bubble in the market for bonds – including both US Treasuries and corporate junk bonds – are in for a rude awakening if things do not go just right, according to an August 22, 2010 InvestmentNews article, “The dangers of the growing bond bubble.”
Continue reading "Bubbles in the Bond Markets?" »
The Financial Industry Regulatory Authority on Tuesday said it ordered Morgan Stanley to pay $800,000 for failing to disclose conflicts of interests in thousands of equity-research reports and public appearances of its research analysts since 2006.
Continue reading "Morgan Stanley's Research Abuses Continue - The Beat Goes On" »
Faced with proposed new regulations for mortgage-backed securities designed to prevent another financial crisis, some Wall Street banks are saying that they should have no responsibility “to undertake any sort of credit analysis” when creating and selling mortgage-backed securities, and that they have no ability to do that, according to Floyd Norris, a commentator on finance and economics, in his August 5, 2010 New York Times article, “Caveat Emptor, Continued.”
One good thing that might come out of the Dodd-Frank financial reform act is better self-policing by Wall Street. Not that Wall Street has changed its unscrupulous ways. But the Securities and Exchange Commission is expecting a big increase in tips from senior employees and third parties because of whistleblowing incentives in the new law that can reach seven-figures, as reported by CNBC in an August 9, 2010 article entitled “Wall Street Rewards to Trigger a Surge in Informants.”
A recent USA today article highlights the fact that investment scams usually increase when there is an economic downturn. The article refers to The North American Securities Administrators Association’s recently released list of Top 10 Investor Traps: The list and discussion points, which are located at http://www.nasaa.org/nasaa_newsroom/current_nasaa_headlines/13048.cfm are as follows:
Continue reading "NASAA's Top Ten Investment Scams for 2010" »
Citigroup has consented to charges by the Securities and Exchange Commission that it misled public investors about the extent of its exposure to sub-prime mortgage-related assets during 2007. Citigroup will pay $75 million to settle the charges, as widely reported in the financial press.
White House executive “pay czar” Kenneth Feinberg has decided not to negotiate with 17 Wall Street firms to rescind $1.6 billion in payments to executive that Feinberg himself described as “ill advised” and payments that “[t]hey should not have made,” according to articles in the Atlanta Journal Constitution (“Bank execs get to l]keep $1.6 billion” by Daniel Wagner) and CNNMoney (“Banks paid big $ to execs during crisis” by David Ellis).
Continue reading "Wall Street Executives Get $1.6 Billion, Main Street America Picks Up the Tab" »
Mainstream USAToday editors expressed amazement over the “just say no” partisanship of the Republican party and the unnecessarily long and contentious battle to pass the financial reform package (“Mindless partisanship mars passage of banking reform,” July 16, 2010). The editors had though that “the worst financial meltdown since the Depression” would have provided sufficient motivation to rise above the partisan excess that was unfortunately displayed. For instance, they thought that the “chastened banks” would accept change. “But that’s not quite how things worked out. After a few weeks of remorse, Wall Street got its swagger back and fought like mad to preserve its profits.”
Investors will soon be able to see more customer complaints, criminal convictions and rulings against brokers when they check out their broker on the Financial Industry Regulatory Authority’s (FINRA’s) web site through its free online BrokerCheck service, according to a July 14th article in InvestmentNews. While the absence of complaints does not guarantee that brokers will always adhere to “high standards of commercial honor and just and equitable principles of trade,” as FINRA purports to demand, investors should always avail themselves of this opportunity, preferably before doing business with a broker.
Continue reading "Soon You Will Be Able to Learn More about Your Financial Adviser" »
Retention bonuses and other perks are not enough to quiet brokers’ yearning to leave their wirehouse firms for advisory firms or non-wirehouse brokerage firms, according to a recent InvestmentNews article by Hilary Johnson titled “Exodus of brokers still a big threat for wirehouses.” Just 29% of brokers who did not receive a “lock-in” bonus (usually because they do not generate big commissions) said they are “satisfied” with their firm. Tip: As an investor, you should consider it a plus if your broker is not a “big producer.”
Continue reading "Brokers Continue to Leave Major Wall Street Firms" »
Billionaire investor George Soros recently told Bloomberg: “The collapse of the financial system as we know it is real, and the crisis is far from over,” Soros said today at a conference in Vienna. “Indeed, we have just entered Act II of the drama.” See article by Zoe Schneeweiss and Andrew MacAskill (“Soros Say ‘We Have Just Entered Act II’ of Crisis”).
Continue reading "Billionaire Investor Believes that the Economy is Still in the Danger Zone" »
Big Wall Street banks have until 2022 to comply with the Volcker Rule and unwind their in-house hedge funds. They spent untold sums on lobbyist to fight the Volcker Rule and protect their hedge fund and proprietary trading operations. A research paper on insider trading by hedge funds, soon to be published in the Journal of Financial Economics, may shed some light on what the banks fought so hard to protect.
Continue reading "Do Hedge Funds and Insider Trading "Go Hand in Hand?"" »
The bond market is a bubble about to burst, investor Jim Rogers told CNBC on Thursday. Rogers also said he sees rising inflation in this country right now – anyone who shops sees it, he says. He says some governments – notably the U.S. and the U.K. – are “lying” about inflation for political reasons, because signs of inflation would make the massive government stimulus and bailout spending (bailing out Fannie and Freddie alone is expected to cost $1 trillion) seem unwise. Other countries – Rogers identifies Australia, China and Norway – acknowledge the existence of inflation and are tightening their monetary policies to fight it.
Continue reading "A Bubble in the Bond Market?" »
Exchange Traded Funds have morphed from their origins as more liquid versions of broad-based stock index mutual funds into more extreme varieties that mimic high-risk hedge funds. Edward Robinson described them as “ETFs Gone Wild” in his recent Bloomberg article, and wonders whether they are a financial disaster in the making.
Continue reading "Are Exotic Exchange Traded Funds (ETFs) an Investment Time Bomb?" »
According to a recent New York Times article by Gretchen Morgenson and Louise Story titled “Documents Show Goldman Pressure on A.I.G,” Goldman Sachs made a huge bet against AIG in 2008 by purchasing $3 billion of credit default swaps insuring against a possible default by AIG, at the very same time that Goldman was driving AIG to default on its obligations by aggressively demanding cash collateral from AIG pursuant to credit default swaps insuring risky pools of subprime mortgages that Goldman had purchased from AIG.
Continue reading "Goldman Faces Allegations that It Pushed A.I.G. Over the Cliff" »
Historically, municipal bonds have been at the low end of the risk spectrum, but economic realities are changing that assumption. According to a May 28 article in CNNMoney by Sara Behunet titled “Three American cities on the brink of broke,” in 2009, 183 municipal issuers defaulted on $6.4 billion of bond payments – up from 31 defaults on $348 million in 2008. That’s an 1800% increase in dollars and a 590% increase in municipalities in default. This alarming trend is expected to continue, according to the article.
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It’s crunch time for financial reform, and Wall Street banks are lobbying hard to keep a central pillar of financial reform from becoming law, and, at the same time, are planning ways of getting around whatever financial reform restrictions do become law, according to a recent New York Times article by Eric Dash and Nelson D. Schwart titled “Banking Lobbyists Make a Run at Reform Measures.”
Default by a municipal bond issuer has been an exceedingly rare occurrence, but a number of signs suggest that the municipal bond market may be on shakier ground than anyone dreamed possible, according to a recent SmartMoney article by Russell Pearlman, “Municipal Bonds: Derailed.”
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Sen. Charles Grassley (R., Iowa), the ranking minority member on the Senate Finance Committee, has asked the Securities and Exchange Commission's inspector general, David Kotz, to investigate the SEC's "revolving door," through which many senior SEC officials transition to lucrative positions with the very securities firms regulated by the SEC. See “SEC ‘Revolving Door’ Under Review,” by Tom McGinty, Wall Street Journal, June 16, 2010.
Two recent Wall Street Journal articles may cause investors to reconsider their assumptions about the supposed benefits of exchange traded funds: “Flash Crash May Prove Blemish for ETFs,” by Ian Salisbury (May 13, 2010), and “Danger: Falling ETFs,” by Eleanor Laise (May 29, 2010).
