Norbert Schlenker wrote:I was a little disappointed with it. Of course people should keep their eyes open for thieves. Of course ass covering by brokerage management is going to occur. However, I think way too much time was spent on the Elford/Kyle/Buell/Urquhart complaints about ten or fifteen year old frauds.
What, take away the entertainment value?
(BTW, did Joe Killoran put in an appearance?)
Let's think this through. Greater financial literacy (through taxes supporting public education, among other things) may not lead to lower spreads, as investors instead opt for GICs (with embedded spreads), fixed-rate mortgages (with predictable spreads) and so on. That's fine, and perhaps retail investors should not be participants in wholesale capital markets for bonds, IPOs and secondary offerings.
After all, they're not bearing the pre-market risk of bringing an issue to market, be it a bond, an IPO or a bought offering for a secondary issue, or a new issue of prefs, that dealers are going to shop, and shop as fast as they can, in the broadest possible quantity. Retail investors want the best price; institutional investors want the best execution of a trade. The two are not the same.
It seems to me that stock and bond markets are not quite utilities, deserving of regulated prices — and prescribed markups. But I may be wrong.
On the other hand, intermediaries in financial markets, unable to earn a profitable spread between fixed GICs and riskier long-term bonds (including corporates) or between variable mortgage rates and Libor, might simply stop. Again, there is no free lunch.
All we get, then, is the daily money market rate, less fees, for investment purposes, and for debt purposes, pay the daily money market rate plus 3% (representing the real cost of money). So risk capital dries up, or retreats from public markets.
It's reminiscent of
the old banking saw was the 3-6-3 rule: pay depositors 3%, lend the money out at 6%, and be at the golf club by 3 o'clock.
Just some thoughts. By political persuasion, I'm a socialist; as a student of the markets, I can see their role in funding innovative research, intermediating risk, overcoming inefficiencies that stand in the way of economic growth and, thus, by fostering productivity, contributing to improved living standards.
Do unregulated markets misfire? Do regulated markets misfire? Do dirigiste
markets misfire? I would suggest all do.
Which redoubles the need for financial literacy, recognizing that it has move from placebo to inoculation, when it comes to risk.
There are, at best, three options for risk reduction (of various sorts): the family (extended or not), the state, or the markets. Nor are these perfectly separable. Both families and states rely on markets to finance day-to-day money needs.
Again, just some thinking out loud, not really responding to anything here but more to recollections of investor advocates who seemed to have wanted it both ways: high returns without any risk (or taxes). Sigh.