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September 08, 2009 at 08:00 PM
Welcome to the re-designed WealthManagerWeb.com and my new blog: Wealth Manager: Viewpoint.
It has been an eventful summer, to say the least. While the acute market crisis has abated in some ways, and stocks have climbed since their March lows, credit markets remain dysfunctional, and unemployment in the U.S. stands at 9.7%. Banks are starting to repay TARP money to the government (and taxpayers)–with interest–and that’s a hopeful sign. There have been several signs that the economy, while perhaps not yet growing, is in a lessening decline–”leveling out,” according to the Federal Reserve’s latest statement. The S&P/Case-Shiller Home Price Indices actually showed a less steep rate of decline in the second quarter, -14.9% compared with -19.1% in the first quarter. While that’s still a terrible decline in the second quarter, the slowing momentum of the decline is–I can’t believe I am writing this–comforting. If you’d asked me five years ago if I would ever call a decline of nearly 15% in an index “comforting” I’d have laughed at your joke. It may be a while still before we see real growth, but the slowing pace of decline is a welcome relief.
Some credit market problems remain inexplicable. For instance, it’s hard to fathom why the auction rate securities (ARS) crisis has dragged on for 18 months now and why investors haven’t been made whole by the underwriters, issuers and sellers of these securities.
One would think that regulators would step in and persuade firms who’ve promised in their covenants to hold auctions to make good on those pledges, or find another way to do so. After all, many of these underwriters were TARP bailout beneficiaries, some of whom are repaying TARP funds and providing generous compensation or bonus packages to executives. It’s inexcusable that there has been such a breach of good faith, and limited response on behalf of investors. See Regulatory Reason, Knut Rostad’s blog for his latest post, “Listen to Chuck,” about New York State Attorney General Andrew Cuomo’s lawsuit against Schwab, and Charles Schwab’s in-the-media response to that suit.
Congress will be busy this fall with regulation for healthcare and re-regulation for financial services, including action to regulate OTC derivatives including credit default swaps, (a way to make highly-leveraged bets on the demise of rival firms–when they lose you win), see article, short selling, broker bonuses, flash quotes and fast trading, and systemic risk among other issues. Perhaps of most interest to wealth managers, there is proposed legislation that would bring all intermediaries who provide advice to individual investors under the fiduciary standard of care.
