No. of Recommendations: 5
Apparently too many investors were getting screwed.

http://blogs.wsj.com/moneybeat/2013/06/21/the-intelligent-in...

With markets in turmoil, investors need good advice even more than usual. But investing advice remains confusing, costly and opaque—and that needs to change.

New rules in the U.K., the Netherlands and Australia show one drastic way to tackle the problem. Starting this coming week, commissions on popular investments like mutual funds will be banned in Australia. Later this year, the Dutch government will finalize a law that will ban commissions as of Jan. 1, 2014. A similar prohibition already went into force in Britain as of Dec. 31, 2012.

These changes provide a glimpse of one possible future for U.S. investors: a market in which “what the adviser gets paid is no longer linked to which product the adviser sells to the client,” as Mark Wiedman, global head of iShares, the largest manager of exchange-traded funds, puts it.

</snip>


intercst
Print the post Back To Top
No. of Recommendations: 4
Great posting, intercst. Thanks.

The real question discussed briefly in the article is how will the industry react? Will they have other more profitable products to promote instead?

Will it be like discount broker commissions? They merely changed focus to emphasize other products?

Or will they be forced to make major changes in staffing and services to stay in business.

I'd like to see a detailed analysis in a few years of the effects of the new regs.
Print the post Back To Top
No. of Recommendations: 0
New rules in the U.K., the Netherlands and Australia show one drastic way to tackle the problem. Starting this coming week, commissions on popular investments like mutual funds will be banned .....

The cynical side of me thinks this is promulgated and supported by the mutual fund industry itself because most of the advisory community has already moved to a fee-based (rather than commission-based) system of how to charge the client. By banning the fees, the mutual fund's performance numbers will look better, perhaps.

It seems that the stranglehold big money has over global politics would prevent these laws from ever passing if the industry wasn't behind them.

But then,this cynical old redneck could be wrong about this take on the news, wouldn't be the first time & not likely to be the last.

Poz
Print the post Back To Top
No. of Recommendations: 2
It seems that the stranglehold big money has over global politics would prevent these laws from ever passing

Sure, but still we have seen major changes in the US brokerage business over the last generation--I suppose from the Reagan era.

*No more fixed commission rates for stock trades.

*End of pricing in 1/8s which guaranteed a 12.5 cent per share bid ask differential. (Now the differential can be as small as $0.0001.) You do know people make a living off of that differential.

*The rise of discount brokers with most trades made online or via 800 numbers. Many fewer broker offices on mainstreet. Many fewer brokers.

An end to loads on mutual funds would not be monumental to most of us. It would affect only some.

Yes, the industry has lots of clout, and they do work to preserve certain aspects, but it looks as if they will not take on "populist" issues. If enough voters want it, it will happen.
Print the post Back To Top
No. of Recommendations: 1
Paul

I will not argue any of the points you made, but will point to several you didn't:

Yes, the industry has lots of clout, and they do work to preserve certain aspects, but it looks as if they will not take on "populist" issues. If enough voters want it, it will happen.

How many people went to jail for the CDS, CDO, Robo-signing, rogue London whale, derivatives messes? How much was spent by the US government (and, ultimately, by many other governments) to bail the banksters out of those messes?

The laws are being written and sound like they are big, bad, reform action but once finally released from committees are toothless and so vague no charges can be made.

As I implied in my first post on this topic, the mutual fund industry had already seen the advisors move to the fee-based (i.e. no-load) model over the last 10 years so, by now, they can back a "reform" like this and it only hurts the small independent shop, if anyone at all.

Poz
Print the post Back To Top
No. of Recommendations: 2
How much was spent by the US government (and, ultimately, by many other governments) to bail the banksters out of those messes?

Actually, the US government made a profit on the TARP money that it provided to banks. It disbursed $245.1 Billion, is still owed $6.1 Billion, and received back $270.9 Billion. Even if none of the $6.1 Billion the US government is still owed by banks is paid back, that's still a net profit of $19.7 Billion. http://www.treasury.gov/initiatives/financial-stability/repo...

AJ
Print the post Back To Top
No. of Recommendations: 1
Pos, I think we are in general agreement that such changes will be fought vigorously and will not easily become law. But sometimes they do get through.
Print the post Back To Top
No. of Recommendations: 1
Actually, the US government made a profit on the TARP money that it provided to banks. It disbursed $245.1 Billion, is still owed $6.1 Billion, and received back $270.9 Billion. Even if none of the $6.1 Billion the US government is still owed by banks is paid back, that's still a net profit of $19.7 Billion.

Well, according to how I read the chart at the link you provided, the total amount lent was $456.6 and the total amount paid back was 417.2 leaving a shortfall on TARP of the difference.

Secondly, TARP wasn't the only program.

Thirdly, in order for Bear Sterns (and possibly Lehman) to be resolved, the Federal Government had to take over their wagers gone awry as well.

Next, I see there no accounting for how much support we rendered to overseas banking entities.

Then pressure was put on the FASB to retract the rule requiring banks to mark their assets to market, without which repeal all of the biggest would have been visibly as insolvent as, in reality, they actually were.

Finally over the last 6 years the banks have borrowed at the Fed window at .25% and lent it right back to the Government at up to 2%. Some may not call that a bailout but if it looks like a duck....

Poz
Print the post Back To Top
No. of Recommendations: 5
Well, according to how I read the chart at the link you provided, the total amount lent was $456.6 and the total amount paid back was 417.2 leaving a shortfall on TARP of the difference.

Not really. Since you referred to 'banksters' (How much was spent by the US government (and, ultimately, by many other governments) to bail the banksters out of those messes?), I provided the link to the TARP program for the banks, not the link to the overall TARP program. TARP made money on the money it provided to the banks. The money that TARP has lost so far has been mostly due to the bailout provided to automakers, not 'banksters'.

Secondly, TARP wasn't the only program.

Well, it was the most talked about program, and the one that I was able to find data on. Do you have data for the other programs? I was just trying to provide an answer to your question of how much the US government has lost bailing out 'banksters'. And at least for TARP, the answer is, the US government made money bailing out 'banksters'. I would be interested in seeing other data.

Thirdly, in order for Bear Sterns (and possibly Lehman) to be resolved, the Federal Government had to take over their wagers gone awry as well.

Well, the Bear Stearns 'wagers gone awry' formed the basis of Maiden Lane, LLC, which also made, not lost, money: http://www.newyorkfed.org/markets/maidenlane.html

Purpose: ML LLC was created to facilitate the merger of JP Morgan Chase & Co. (JPMC) and Bear Stearns Companies, Inc. (Bear Stearns) by purchasing approximately $30 billion in assets from the mortgage desk at Bear Stearns.

Terms: The New York Fed lent ML LLC approximately $28.82 billion. The loan has a 10-year term and accrues interest at the primary credit rate. JPMC lent ML LLC approximately $1.15 billion. The JPMC loan has a 10-year term and accrues interest at the primary credit rate plus 450 basis points.

Investment Objective: Repay the New York Fed’s senior loan (including principal and interest), while refraining from disturbing general financial market conditions. Following a 2-year reinvestment period, monthly loan repayment commenced in July 2010.

On June 14, 2012, ML LLC repaid the loan made by the New York Fed, with interest. Proceeds from future sales of ML LLC assets will be used to repay the subordinated loan extended by JPMorgan Chase & Co., after which the New York Fed will receive all residual profits.


As far as the US government supporting Lehman, everything that I found indicated that the refusal of the US government to provide support was a signficant reason why Lehman ending up declaring BK, so I'd be interested in seeing any information that you had to support your theory that Lehman was provided support by the US government.

Next, I see there no accounting for how much support we rendered to overseas banking entities.

Well, TARP did provide support to some overseas banking entities, and, net/net, TARP bank programs made money for the US government. Additionally, Maiden Lane transactions also paid off some obligations to overseas banking entities, but again, made money for the US government. If you want to provide data on other programs where the US government lost money by providing support to overseas banking entities, I'd be interested in seeing that, too.

Then pressure was put on the FASB to retract the rule requiring banks to mark their assets to market, without which repeal all of the biggest would have been visibly as insolvent as, in reality, they actually were.

I fail to see how FASB relaxation of mark to market rules caused the US government to spend money bailing out 'banksters'. If anything, by allowing the banks to keep the charade up, the US government didn't have to spend money bailing additional banks out.

Finally over the last 6 years the banks have borrowed at the Fed window at .25% and lent it right back to the Government at up to 2%. Some may not call that a bailout but if it looks like a duck....

I don't disagree that, actually, for even longer than the last 6 years, the Fed has lent money to banks for short terms at a rate lower than the banks lend money out at for long terms, including lending money to the Federal government. After all, one of the purposes of the Fed is to facilitate liquidity in the monetary system. And with a non-inverted yield curve, short term loans are priced at a lower rate than long term loans. However, based on the data that has been released (by law, reported on a 2 year lag, starting with Q3 2010) on the borrowings from the Fed window http://www.federalreserve.gov/newsevents/reform_discount_win... the amount lent out using the discount window is almost all to small banks/credit unions, is very short term (averaging around 4 days), and is generally less than $10 million at a time. Additionally, while there were some loans made at 0.25%, the majority of loans were at 0.75%, or higher, in the data provided.

Assuming that the money was able to be lent out at 2% for the entire term of the loan, the total interest that could have been earned for the quarters reported so far was:

2010 Q3 - $386k
2010 Q4 - $364k
2011 Q1 - $ 96k

Based on those dollar figures, I'm not even really seeing a brand new hatchling, much less a full grown duck.

AJ
Print the post Back To Top
No. of Recommendations: 0
Assuming that the money was able to be lent out at 2% for the entire term of the loan, the total interest that could have been earned for the quarters reported so far was:

Yeah, OK.

I borrow at .25% on Monday, lent it back to the Fed on Wednesday out of payments made to me by the Fed on previously lent money and then talk someone into believing I only made a percent for a few days. Do you honestly believe that $85 billion a month is being lent $10 million at a time for a few days only? Then how did the Fed's balance sheet balloon to over $3. trillion? Under your scenario of an average of $10M per copy the balance should be in the low billions, not low trillions, no?

I mean common sense has to come into this somewhere. The report you cite is from 2 years after the heyday of the crisis, yet the Fed is still buying $85 billion per month.

While searching for a more realistic number that your $10 million, and perhaps to shoot down my belief that we're all getting fleeced without even saying "Baaaa" about it, I did a Google and came up with the following PBS segment. At the time of filming, the Fed was still apparently fighting having to disclose to the US citizens what and how it was obligating them, so the clip is short on the hardest of data that I'd like to see, but gives an approximation by the PBS tally that is quite a bit bigger than the $700 Billion number. As the clip indicated, not all of that extra was lent out, some was just in the form of guarantees. But those guarantees have a value (or why ask for them) and if the situation had gone further south, those guarantees would have (presumably) had to be honored by the Fed.
http://www.pbs.org/wnet/need-to-know/economy/the-true-cost-o...

But, like you indicate, nothing to see here, move along.....

Poz
Print the post Back To Top
No. of Recommendations: 2
Do you honestly believe that $85 billion a month is being lent $10 million at a time for a few days only?

No, because the Fed is not 'lending' $85B/month at 0.25% through the discount window. You are talking about 2 completely different functions of the Fed.

The $85B/month is being used to purchase bonds, which are based on loans made to consumers at a rate higher than the bond rate. That's how banks have always made their money - borrowing at a lower rate than they lend out at, although with rates being kept this low by the Fed, the differential is actually smaller than it has generally been historically, as you can see in this FRED data: http://research.stlouisfed.org/fred2/series/USNIM If you look at the timeframe since 2008, on average, the differential is significantly lower than the average differential was prior to 2008.

Then how did the Fed's balance sheet balloon to over $3. trillion? Under your scenario of an average of $10M per copy the balance should be in the low billions, not low trillions, no?

Because the Fed lent money out by buying bonds, not because they lent money out using the discount window.

At the time of filming, the Fed was still apparently fighting having to disclose to the US citizens what and how it was obligating them, so the clip is short on the hardest of data that I'd like to see, but gives an approximation by the PBS tally that is quite a bit bigger than the $700 Billion number.

Well, the disclosures were eventually made, and I think this website contains the data that you are looking for about what happened during the financial crisis. http://www.federalreserve.gov/newsevents/reform_transaction....

However, the guarantees and lending that you are talking about were not through the discount window (which is where some, but not all, banks can borrow at 0.25%) but through specific loans/instruments that carried interest rates significantly higher than 0.25%. The money the banks borrowed by issuing TARP trust preferreds to the Fed, for instance, started out with at a 5% rate, with an increase to 9% 5 years after the issuance of the trust preferreds, so those banks that have not paid back their trust preferreds that were issued in 2008 are going to see a significant increase in their interest expense later this year.

AJ
Print the post Back To Top
No. of Recommendations: 1
aj485

You obviously are quite informed and have a civil and complete grasp of the thoughts and counterarguments. I, on the other hand, am in pretty severe pain and am not expressing my thoughts or opinions in a manner worthy or either myself nor, certainly, toward a person of your talent.

Therefore, for now, I will cede both the arguments and the floor until such time as I can express myself more ably.

Thank you for your civil responses to what, in review, were poor arguments on my part.

Poz
Print the post Back To Top
No. of Recommendations: 1
Hope you feel better soon!

AJ
Print the post Back To Top
No. of Recommendations: 0
Thank you!

Spinal cyst L4-L5, and it just having a grand old time of playing "buckle the leg of the old redneck"

Some work will be done on it Monday, but the major work looks like it will have to wait until sometime in the New year.

Poz
Print the post Back To Top
Advertisement