Our Financial System is Broken

How much more evidence do we need, to say that our financial system is broken.  Case in point – the recent Facebook IPO.  Here’s another example of how Wall Street and the major financial institutions took advantage of the average citizen with a ridiculously over-valued offering price for Facebook.  It started out at $38 per share and over the first week lost 20% of it’s value.  So while the average investor bought shares at the offering price, the people who already owned shares (from the second market transactions) made their profits at the expense of the average investor.

This is another example of where our lawmakers have failed to regulate the financial markets.  Facebook shares have been trading for months on the so called “second market.”  Why does the system allow that to happen?  Where were the regulators?

Behind the scenes, investment banks and wealthy “insiders” are allowed to gain the inside track and profit from the IPO that was perpetrated on the average investor.  We are left to believe that this was all a poorly executed IPO and that Facebook management and the investment banks are to blame.  I think this played out exactly the way they intended it to.  The insiders made their money at the expense of the average “Joe.”

The old marketing adage is, “sell the sizzle, not the steak.”  And that’s exactly what they did.

I think our government leaders are incapable of reining in the financial industry.  There are so many ex-financial industry insiders in government that we have the “foxes” guarding the hen house.

 

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Stop a Potential Food Labeling Fiasco

Remember the “pink slime,” i.e. leftover scraps from beef processing that get sanitized with ammonium hydroxide and then are added to ground beef.  Well now the beef industry is proposing to label the beef products that contain ammonium hydroxide sanitized beef as (are you ready for this?) “contains lean finely textured beef.”  How do these words in any way describe to consumers that the ground beef contains ammonium hydroxide sanitized beef?

Read about here – http://yhoo.it/HyDYfq

Consumers in the U.S.A. should be very concerned about this and the fact that the U.S. Department of Agriculture (USDA) thinks it is a good idea.  Oh really.  I thought the USDA was supposed to protect the consumer and to ensure the safety and quality of the nation’s food supply.

Contact your elected representatives and express your concern over the use and labeling of ammonium hydroxide sanitized beef in any food product.

 

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Google – Oops! Was that supposed to be private?

Never a dull moment with these big Internet companies.  Did you know that Google has overridden a security feature in Apple’s Safari browser to make it accept cookies?  Yes, it’s true.  Read about it here – http://on.ft.com/zWbUbp

What I also found very interesting is that Google’s own browser – Chrome, does not even have a feature to let you block cookies; at least as of the time of this post.

Just be aware of these privacy issues.  Google is all about making money and if your privacy gets trampled on in the process, well that’s called capitalism!

 

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No More “Pink Slime”

I was surprised to read this article about the additives that are used in our food and in this case, one company’s decision to stop using meat that contains one such processing agent – ammonium hydroxide.

The government agencies that are supposed to inform and protect us are in the pockets of the large corporations.  Many of the people who serve on these government agencies are industry “insiders.”  There is no independent oversight of agriculture and food production.  Food labeling is a joke – it’s more like food “mis-labeling.”  We have a right to know where our food comes from, how it is processed, and what is in it.

This article you have to read for yourself.  http://yhoo.it/xiTTbY

I hope everyone who reads this post will ask for better food labeling and be more aware of where their food comes from, how it is processed, and what is in it.  You have a right to know.  We are what we eat.

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European Bank Stocks Rally – Why not?

I saw this article in the Financial Times and I had to comment.  There was a big rally in European Bank stocks in January.  http://on.ft.com/xuvEpq

Why shouldn’t European Banks rally?  They are getting practically free money in the form of low interest loans from the European Central Bank as part of an unlimited three year loan program announced in December known as Long-Term Refinancing Operations or LTRO’s. http://on.ft.com/wa0JrY

As I commented on in a recent post, even the Royal Bank of Scotland (remember the UK is not part of the Eurozone single currency) was able to take advantage of the new ECB funding mechanism through it’s subsidiary in The Netherlands.  http://tgr.ph/z13OVR

You remember the basics of how banks make money.  They take in deposits for which they pay the depositor a usually fixed interest rate.  These are considered liabilities by the bank.  Then they take that money and loan it out to a borrower at a higher interest rate.  These loans are considered assets by the bank.  Pretty simple.

The question is: will they loan the money out?  Some people think the banks will hoard the extra liquidity that these funds provide.  Others think they might buy bonds of distressed countries to make a quick buck.  In any case, these bank stocks look better in January than they did in December.  Great, but let’s hope these funds fulfill their intended purpose and that is to stabilize the Eurozone.

 

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PM Criticizes EU

I think the UK Prime Minister should turn his attention to fixing the problems in the UK and let the Eurozone leaders work on sorting out the problems with the Euro. Read the article here: http://bit.ly/xdDHuT

He already created enough problems when he vetoed a proprosal for more financial rigor within the Eurozone at last months summit. His reasoning was that he doesn’t want the EU to implement a financial transactions tax. He would rather protect the bankers who precipitated the financial crises and that has caused Eurozone countries to take on additional debt to bail out these same financial institutions; rather than help to resolve the Eurozone crisis. I find it absolutely appalling that he defends the special interests of the banking sector and ignores the welfare of the broader public interest. http://bit.ly/xTaF2p

I also find it interesting that a lot of his own constituents feel he should focus more on fixing the problems in the UK as well.  With the high unemployment in the UK the PM has plenty of work to do in his own backyard before he starts throwing rocks across the channel.

Isn’t it interesting that although the UK never adopted the Euro, the Royal Bank of Scotland was able to take advantage of the recent European Central Banks new funding offer through their subsidiary in The Netherlands.  http://tgr.ph/z13OVR

How dare any national leader defend the special interests of banks after the financial havoc they have levied on the world? Mr. Prime Minister – shame on you.

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Update on the Collapse of MF Global

Well here’s the article that lays it all out: the overconfidence, the intimidation, the big ego, the reckless use of power.

A big thank you to The New York Times for reporting on this financial tragedy.  http://nyti.ms/uIoyJu

We do not have adequate regulatory controls over financial institutions to prevent this scenario from playing out time and time again.

Wake up people!

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Proposed Occupy Wall Street Manifesto

The “Occupy Wall Street” movement is being criticized in the public media for not having a unified manifesto.  Here’s a proposal:

1. We want legislation enacted that would reinstate the provisions of the Glass-Steagall Act (The Banking Act of 1933) separating the activities of commercial banks, investment banks, bank holding companies, and insurance companies.

2. We want legislation enacted that prohibits corporations from making donations to political campaigns.

3. We want the leaders of the financial companies that were bailed out during the financial crises to be prosecuted to the full extent of the law under the Sarbanes-Oxley Act of 2002, the Securities Exchange Act of 1934, and the Racketeer Influenced and Corrupt Organizations Act (RICO).

More to follow……….

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He Doesn’t Know Where the Money Went

Have you been following the news about the collapse of the hedge fund MF Global?  You know the hedge fund that was headed by Jon Corzine, former US Senator, former Governor of New Jersey, former CEO of Goldman Sachs.

How does a guy with his background have the nerve to testify before the U.S. Congress, that “he doesn’t know where the money went”?  He was the CEO – he’s supposed to know what’s going on in his own firm.

Read about it here: http://cnnmon.ie/rO1IGQ

Even a captain goes down with his ship; but not Corzine, he resigned.  http://cnnmon.ie/tE1cys

And it all started with this earlier post: http://reut.rs/sOurWA

How much longer are the American people going to sit back and let this kind of nonsense continue?  Call and write to your elected representatives now.  Don’t ignore these issues.

Even after all the financial chaos that’s occurred since the fall of 2008, these financial shenanigans are still happening.  We need more government regulation of the financial industry. Believe it!

 

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We Need More Financial Sector Regulation

I read an editorial in The Economist about the recent “Occupy Wall Street” movement.  I find it interesting that the author took the liberty of editorializing about several symptoms of the 2008 financial crises without adequately addressing the cause.

The author talks about the need for more economic stimulus to get people back to work and to reduce unemployment.  Youth unemployment in the U.S.A. hovers around 17%, in the European Union around 20%, and in Spain youth unemployment is over 46%.  Are you starting to get an idea about why people are upset and are protesting?

People can’t get credit.  Housing prices are still depressed and some analysts even forecast they may go lower.

I think the author completely misses the point: most all of the problems we are currently facing are a direct result of the lack of regulation of the financial industry over the past decade in the U.S.A.  The epicenter of the 2008 financial crises was clearly located in the U.S.A.  Financial corporations and their powerful lobbyists were ‘chipping away’ at financial regulations over the years – most notably the “Glass-Steagall Act”.  Read about the Glass-Steagall Act here: http://en.wikipedia.org/wiki/Glass–Steagall_Act

Our elected officials did not do enough to rein in “financial innovation” and the result has been a melt-down of the financial markets around the world.

When I was enrolled in business school, we learned in the Money and Banking course that financial corporations are always trying to innovate – to find ways to earn more money and circumvent current regulations.  Government’s role is to monitor and control this financial innovation by enacting legislation to regulate the financial industry.  I believe this is where our elected officials let us down.  They did not adequately regulate the financial industry.  We also learned about “moral hazard” – the tendency for human beings to make mistakes and to do things that are immoral, unethical, or illegal.  In other words – the greed factor.

When I was in college I wrote a term paper on “The Great Depression.”  I had no idea we would be on the cusp of such an event in my lifetime.  Our forefathers enacted regulations to compartmentalize the financial industry, to separate investment banking from commercial banking, insurance companies from investment firms.  After a major provision of the Glass-Steagall Act was repealed in 1999, the co-mingling of investment banking with other financial services was once more allowed.  By the way the sponsors of the bill the repealed this aspect of the Glass-Steagall act were all republicans.  No surprise.  The result has been a repeat of the financial catastrophe of 1929.

People if you are not concerned about this issue, you should be.  Basically governments around the world have taken on the debt from the failed gambles of the financial industry.  We, our children, and our grandchildren will have to pay for their folly for years to come.

We absolutely need to stimulate the economy to get people back to work; but if we fail to enact laws to appropriately regulate the financial industry, then we are destined to repeat this terrible period in our history again.

Look at wha’t s going on in Europe.  The financial industry is putting the Euro zone countries into “play”.  Let’s see if I have this right.  The financial industry causes a global financial crises.  Governments protect financial institutions (with tax payer’s money) claiming they are “too big to fail”.  These countries are now experiencing higher borrowing costs, lower credit ratings and huge budget deficits.  Now these same financial institutions are making money betting against these countries.  When are our elected officials going to say “STOP” and put the hammer down on the financial industry?  Is this “wag the dog” or what?

 

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