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Jason wrote: "Stupid brokers rape the uninitiated (and everyone else for that matter) whenever and wherever they get the chance. Bah!” [Post #17385]

Ken quoted that comment and added his own: “I wish I could rec that twice.” [Post #17385]

Let me ask both of you this: Who was “stupid”? the broker or the customer?

There’s a saying that goes like this: "Fool me once, shame on you. Fool me twice, shame on me.”

Learning anything, not just investing or trading, involves making mistakes, often very painful or expensive ones that others will laugh at and/or take advantage of. Things don’t have to be that way. Learning can happen in a supportive environment. But that’s a rare exception. “Dog eat dog” better describes the “real world”, as is reflected in sayings like “paying your dues; paying your tuition”.

If either of you play Cribbage, then you know there’s a feature in the game called “Muggins”. If your opponent miscounts his points, you can point out the error and capture the points for yourself. In other words, ignorance, mistakes, and carelessness get penalized. Cribbage is just a card game. But “muggins” happens in the “real world”, too. Make a mistake, and no one else is under any obligation to forgive that mistake. Some people, maybe a lot of people, do so, because they realize that, often enough, the shoe is on the other foot. They don’t want to live in a world without tolerance and forgiveness, so they will forgive the mistake and forego taking advantage of it. [Karma, Baby. Karma.]

Brokers, by and large, are parasites who make their living by imposing themselves as middlemen in a process to which they are largely extraneous. Furthermore, to the extent that they can take advantage of customers’ mistakes is the extent to which they can further enhance their earnings. That’s the game they play. They can, and will, call “Muggins” at every opportunity. Worse, when they make a mistake, they typically disallow the customer from calling “Muggins”. A classic example of this is mispriced securities. Not two weeks ago, I saw that E*Trade was mispricing some bonds, so I wrote orders as fast as I could. Two of the orders they canceled, pleading “mispricing”. I did get a fill on one of them, and the trade was posted to my account. But by the next day, they had busted the trade, and all record of it happening had been erased. And I’ve had this situation happen before. If I try to execute on their mistake, the trade gets busted. If I make a mistake, the trade stands.

Moral? To try to live life without making mistakes imposes a huge psychic burden on freedom and creativity. The price isn’t worth paying, IMHO. The better plan is to accept the fact that not every idea is going to work out and not every action will be well thought out. Mistakes and accidents are going to happen. The best one can do is to attempt to manage their damage, and blaming brokers for acting in the ways they do is the moral equivalent of blaming mosquitoes for biting you. Mosquitoes (aka, brokers) need a blood meal to continue their species. If you don’t want to provide that blood meal, then use precautionary measures. You’re going to get bitten once in a while no matter what you do. But you don’t do the equivalent of walking naked in the woods, at least, not a second time.

Furthermore, it is very important to not get sloppy with metaphors and call something "rape" which isn't. Rape is criminal sexual violence. Losing some money (whoever's fault) isn't rape. The two are very different. There are plenty of examples of brokers who have been convicted for commiting criminal behavior. It has to be admmitted that such behavior is exceptional. That brokers generally are vicious and predacious within the limits of the law is another matter. Such behavior can be protested in a blanket manner in public forums. But the more effective action is to detail specific incidents of abusive conduct as a warning to others and then to transfer one's account.

Charlie
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I agree with the crux of your post imdajunkman. I find the lack of personal responsibility today to be incessantly irritating. The onus is on the customer to make sure they know what they are doing.

However, I didn't learn about my broker's pricing by making a mistake (as you alluded to), I learned through research and inquiry. But it was a lot harder than it should have been. I take issue with E*Trade and TD Ameritrade because they structure their fees in order to deceive (of course it is borderline). How can you excuse someone for not simply listing what they are charging? How hard is it to disclose how they calculate fees on these transactions? Why must we figure it out? It should be plainly disclosed. My issue with these brokerages is that opportunity costs are real costs but they continue to use them for the sole purpose to deceive.

Along with a customer accepting the responsibility to know what they are doing before initiating a transaction that customer has a right to expect that fees and such are fully disclosed in a transparent manner.

We are not playing cribbage. We are conducting business. There are no points for "gotcha's", only unhappy customers.

Jason

P.S. I think the rape issue is a tad technical, but I will give that one to you. It may be rather harsh language for the topic at hand. :-)
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On this subject, I had an opportunity today to compare the quotes of Vanguard & TDA on the 20-year TIPS.

On the buy side (that was all I looked at), the "hidden" markup was $6 a bond. Adding $5/bond commission ($40 min), that's $11 per $900 bond, or roughly 1.2%.

Vanguard charges $0.75 per $1,000 face value ($40 min, $75 max).

So, for my normal purchase size of roughly 15 bonds, TDA costs me $6/bond extra (about 0.06%). Not too bad, but not that great, either. (Not to mention, the last time I bought some from TDW, it took several hours to get a full, by which time the market had moved quite a bit against me. Coincidence? When I complained, I was told it was a very illiquid market ... but they adjusted the price as a courtesy.)

Ken
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On this subject, I had an opportunity today to compare the quotes of Vanguard & TDA on the 20-year TIPS.

On the buy side (that was all I looked at), the "hidden" markup was $6 a bond. Adding $5/bond commission ($40 min), that's $11 per $900 bond, or roughly 1.2%.

Vanguard charges $0.75 per $1,000 face value ($40 min, $75 max).

So, for my normal purchase size of roughly 15 bonds, TDA costs me $6/bond extra (about 0.06%).


I think that would be 0.6% (or [6/1000] * 100 percent).

Not too bad, but not that great, either. (Not to mention, the last time I bought some from TDW, it took several hours to get a full, by which time the market had moved quite a bit against me. Coincidence? When I complained, I was told it was a very illiquid market ... but they adjusted the price as a courtesy.)

"Not to bad" is very subjective. I pay $8 for a stock trade, and when I purchased 1000 units of ISM at 22-something, I paid roughly 0.036% in commissions for that purchase. But if I were to purchase 22 SLM CPI-linked bonds (an almost exactly equivalent investment), I would pay (at $5 per bond) 0.5% in commissions, or nearly 14 times as much (and that is without accounting for any spreads, which are higher for bonds than stocks as well)!

To me, 14 times as much is more than outrageous. I think the bond brokers and market makers are ripping us off.
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I find the lack of personal responsibility today to be incessantly irritating. The onus is on the customer to make sure they know what they are doing.

Lack of personal responsibility is a major problem in this country (starting withthe politicians and extending down to the girl who almost ran me over yesterday because she pulled into the crosswalk to turn right, talking on her cell phone—luckily, I assume this will happen, but we have little kids on bikes and little old ladies with canes walking crossing the same intersection).

However, the Libertarian belief in "buyer beware" is a perversion of business ethics. Business is based on the social contract, a basic assumption of trust betwen buyer and seller. That's why I like small, locally owned businesses: if they cheat, they get held responsible. Itinerant peddlars were the suspicious ones, and even they had to worry about tar and feathers, if they ever passed that way again.

It is not up to customers to make sure they aren't being cheated. I pay some attention at the supermarket to make sure mistakes aren't made (mostly because cashiers don't seem to know the difference between on sale string beans and expensive snow peas), but it isn't because I think they are getting a bonus from the boss for pulling a fast one. At a restaurant, I'll glance at the bill to make sure it looks right, but I don't demand the menu back to recheck the prices and add it all up for myself, as I would if I was worried about cheating. Obviously, when buying anything substantial, a good consumer does research and doesn't just rely on the sales clerk, but even with this, I've generally found clerks on commission pretty reliable, not trying to sell me something more than I want—my biggest complaint is places where you can't find help or the clerks are hired because they are Olympians and don't know thing one about the products.

Wall Street has now joined used car salesmen as one of those businesses where "buyer beware" has become a necessary precaution, but it is not the customers' fault for missing this, when the industry has cultivated a belief in putting the client first. That's why many of us got involved with TMF, and if we go overboard in proclaiming that you should expect to be cheated, the finance industry deserves it (and the top executives at Merrill Lynch, City Bank, etc., should be in jail for investment banking scams). Hidden costs are part of the cheating, and it should not be up to naive customers to learn how to read the fine print to figure out hidden costs: if big business doesn't want to be regulated, since we don't have tar and feathers, it should learn how to behave honestly.
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I think that would be 0.6% (or [6/1000] * 100 percent).

I think you're right. :-) Oops. I thought 0.06% looked a bit small, but obviously I didn't think about it long enough.

I think the bond brokers and market makers are ripping us off.

I don't disagree, but I suppose Charlie's point is also to be considered (can you be ripped off if you know ahead of time you're being overcharged?).

I'm looking at it as penny wise & pound foolish. I'm trying to save $6/bond, but by the time the auction comes around, I may lose $100s / bond if the price moves against me too much.

Damn brokers.

Ken
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I may lose $100s / bond if the price moves against me too much.

I need to start drinking coffee in the morning.

$100s/trade, yes, $100s/bond -- no way. Worse case I can imagine is maybe 3-4 points / bond, which would be $30-$40.

But obviously prices can move in either direction while I wait.

Ken
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Jason writes:
”P.S. I think the rape issue is a tad technical, but I will give that one to you. It may be rather harsh language for the topic at hand. :-)”

Jason,

Using the term “rape” as a metaphor to describe the financial misconduct of brokers was both inaccurate and inappropriate.

Rape, as an officially-denied but nonetheless keystone policy of the US government through such agencies as the School of the Americas and its “counter-insurgency” efforts in Latin America, through the CIA’s gulag of prisons in the Third World, and through the US military’s management of Abu Gharib/Gitmo/etc, is another matter. There the rapes are real.

All of that having been said, I dislike brokers generally, and I dislike “language police” specifically. But we live in Orwellian times, and insisting on accuracy of reporting is the only moral weapon that decent people –-which I presume you to be-- have left to them. So bash brokers all you want to for their plenteous examples of abusive conduct, but make a distinction between losing a very impersonal object like money and suffering the very personal violence of rape.

Charlie
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Jason writes:
P.S. I think the rape issue is a tad technical, but I will give that one to you. It may be rather harsh language for the topic at hand. :-)

Jason,

Using the term “rape” as a metaphor to describe the financial misconduct of brokers was both inaccurate and inappropriate.

Rape, as an officially-denied but nonetheless keystone policy of the US government through such agencies as the School of the Americas and its “counter-insurgency” efforts in Latin America, through the CIA’s gulag of prisons in the Third World, and through the US military’s management of Abu Gharib/Gitmo/etc, is another matter. There, the rapes of both women and men are real.

All of that having been said, I dislike brokers generally, and I dislike “language police” specifically. But we live in Orwellian times, and insisting on accuracy of reporting is the only moral weapon that decent people –-which I presume you to be-- have left to them. So bash brokers all you want to for their plenteous examples of abusive conduct, but make a distinction between losing a very impersonal object like money and suffering the very personal violence of rape.

Charlie
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Loki,

With all due respect to your advocacy of liberalist values (as opposed to libertarian ones) and the kinder, gentler world they represent, I think you are indulging in revisionism. From whence comes the expression Caveat emptor? Certainly not the rural countryside of last-century American, but a long-ago empire, not unlike our present-day circumstances.

The struggle between sellers and buyers is ages old. If I knew Bible stories, I could probably quote you dozens which “proved” other side of the argument but mostly served to substantiate that discussions of “business ethics” isn’t an invention of the “moderns”. If I knew Talmud, I know for sure I could quote some very deep and thoughtful discussions of the matter. But I’m a cultural illiterate. So I have to depend on my own personal experience of financial markets, and my conclusions are these:

(1) Naïve participants have no business getting involved with financial markets.
(2) Customers, by transfer their accounts, can punish brokers who cheat far more effectively than any regulators.

Charlie
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To Ken (and anyone else who is suffering the high commissions and wide spreads that bond buyers endure).

Bonds are an institutionally dominated market. The figure I keep seeing is that only 2% of all bond buys or sells are done by individuals. Until we bond customers have greater clout (the way that stock buyers and sellers most certainly do from their sheer numbers), we will continue to suffer disparities, if not abuses.

As far as I know, nobody beats Interactive Brokers on bond commissions and spreads. But how many of you have made an effort to set up an account with them? Until they have a loyal and growing customer base, there is no reason for other brokers to compete for your business by lowering their prices. They are depending on your inertia so they can continue to do "business as usual".

Complaining feels good, but you need to vote with your feet. Mind you, IB isn't perfect. They don't as yet trade Treasuries, nor Agencies (with rare exception), nor even the whole of the secondary corporate market. Bonds are't yet a "main menu" item for them, likely because the potential customer base is so small. But throwing some business their way to the extent that you can helps to grow their bond trading capabilites and benefits all of us eventually. It's a matter of having faith that individual action is important. By acting now, those who follow can benefit.

Charlie



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Charlie,

Bonds are an institutionally dominated market.

I hadn't really considered that, but I'm sure you're right. So do you agree with the statement that I was given, that the TIPS market is very illiquid, and to have to wait a few hours for a market order execution is not unusual? Since institutions probably buy in huge quantities, but not all that frequently, it seems plausible, if not likely.

Complaining feels good, but you need to vote with your feet.

You know, you're right, complaining DOES feel good! :-)

I'm not a bond trader, though. Except for some preferreds (which are obviously an entirely different market ... but talk about illiquid!), I buy only Treasuries. I have an IB account, but until they do start trading Treasuries, I can't vote with my feet or any other part of my body. :)

Ken
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So do you agree with the statement that I was given, that the TIPS market is very illiquid, and to have to wait a few hours for a market order execution is not unusual? Since institutions probably buy in huge quantities, but not all that frequently, it seems plausible, if not likely.

Ken,

I know nothing about TIPS. Loki is the resident expert. But I do know a tiny bit about bond trading, and I'd say that your having to wait for an execution --or anyone having to wait for a bond execution-- is total bullsh*t. The desk to which you submitted your order was deliberately sitting on the order, waiting to see if they could get a better offer from someone else.

I've had a similar situation happen a bunch of times. I'd write the order and then wouldn't get a prompt fill. So I'd attempt to cancel. Immediately, my order was executed. Or I'd write the order and wouldn't get a fill. Then at the end of the day, I'd finally get message: "Order canceled". Or I'd write the order and they'd came back to me with a message: "Price changed. Do you want to accept?"

The variations are endless, but they all amount to the same thing. The market is illiquid, as in there aren't many trades happening. But the desk holding the bonds and the next-level-up intermediary (which is your broker) are both trying to gouge to the max anyway rather than doing the trade at the market prevailing when your order was submitted.

At IB, I generally have to wait a few seconds to a minute or two to get a bond fill. But I've never had to wait longer. (This doesn't mean that games don't get played by the underlying desk, which I'll explain in postscript). At E*Trade, even if the bonds are listed as "Firm: Immediately Executable", I generally have to wait longer than that. At BrownCo, orders were submitted by phone, so executions were generally immediate: I got a fill while I was still on the phone. At Harris, executions varied as far as how long they took, but they were generally acceptably quick.

The fact that Vanguard (or whoever it was) adjusted the price when you complained means they knew they were screwing you around. They had the bonds in inventory but were expecting the market to move higher and wanted to gouge you the price. You complained, so they offered you the bonds at the price prevailing at time you submitted your order. They didn't do you a favor. They did themselves a favor by forestalling a possible SEC complaint.

Charlie

PS IB doesn't hold bond inventory. They attempt to execute on inventory offered out by bond desks, of which there are a hundred or so nationally. Lots of times, the underlying desk won't release the bonds, so IB can't execute. And lots of times the following game gets played. IB requires bond orders to be written as limit orders for their own and for their customers’ protection. The policy is well-meant, but awkward, inconvenient, and sometimes counterproductive. (IB is a stock/futures/option firm, not a bond firm, and nobody does a better job of cheap, fast executions.) Bonds are an after-thought, and some of the trading policies for bonds were borrowed from the models that work successfully for stocks/futures. E.g., in the pre-market and post-market, only limit orders can be written. Market orders are rejected, because IB wants to protect itself and its customers. A lot of savvy traders complain, saying they know what they are doing and are willing to accept the consequences. But IB is run by some tough-minded people who care about both IB and about customers, and the policies they make are easy to understand and to defend.

OK. The game I see being played by the underlying desk is this: IB is quoting the inside market on an issue: the national best offer and size, the national best ask and size, and the last trade and size.

An aside: Yes, I know there are no national clearing places (aka, exchanges) for bonds the way there are for stocks. But there is a functionally-equivalent, electronic quoting system. To their credit, Fidelity quotes the NASD prices. E*Trade and most other brokers ---e.g. Scottrade-- quote a markup of those prices.

If I attempt to execute through IB, IB sends my order to the underlying desk. But because it is a limit order (even if the price specified is the offer and therefore should be immediately executable), the desk can reject it, which they often do, not explicitly, but by not enabling IB to execute. So my order sits there on IB’s market line. Meanwhile, the underlying desk raises the offering price, which IB now quotes. So, obviously, my order isn’t going to be executed, because I’m now bidding less than the offer. So I’ll cancel. Shortly thereafter, the underlying desk will drop their offer back to the original price. If I wait around and track prices, I’ll see the price continue to vary throughout the day. Sometimes I’ve gone back and gotten the bonds cheaper than my original offer. But at the time I submitted my first offer, the underlying desk (once they had an offer for me) was looking for an even better price.

I don’t blame IB one bit. They are doing the best they can with a fragmented, institutionally-dominated market, trying to provide their customers with cheap, fast executions. I don’t blame the underlying desks. They know how the bond market works. They know that small, retail bond buyers will roll over rather than fight back. So there is no incentive for them to change their business models. The group of people I do blame is bond customers. Unless and until they get themselves organized and fight back, nothing is going to change. Fighting back can take either of two forms: the regulatory route or the transfer accounts route. I have more faith in the latter. That’s just me, but that’s why I attempt to execute through IB whenever I can. To the extent that they flourish is the extent to which E*Trade and their ilk lose market share and have to reconsider their business model. There is no reason why bond investors can’t force fees down the same way that stock investors have forced fees down. We bond investors don’t do the share volume the stock guys do, but we might do enough dollar volume to be a presence worth catering to. But we have to present a united front instead of being so dividable and conquerable, as we presently are.

More than once I’ve thought about becoming a market marker in bonds, just I could meet what I perceive to be the needs of small investors. It wouldn’t be impossible to do. The technology and capital requirements aren’t huge, but the personal commitment would be. And I have to ask myself if that’s what I really want to do. I don’t need the money to be gained. Nor would the service, for the most part, be appreciated. And the last thing I want to do would be to help the rich get richer. A pox on them. But my heart does go out to the little guy who had the discipline to create savings that she or he is now trying to turn into investments as a way of moving purchasing power forward in time. The vultures and parasites that are Wall Street prey on the little guys (who, admittedly, are often their own worst enemies). A decent bond shop would be a help to them. IB isn’t even close to what that small investor needs, but they are far better than their competitors, and so I support them.


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in Latin America, through the CIA's gulag of prisons in the Third World, and through the US military's management of Abu Gharib/Gitmo/etc, is another matter. There the rapes are real.


dont forget the chinese and nkoreans killing and jailing machines ,, thankfully saddams machine is shut down



tim
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Thanks for the education, Charlie. No wonder I don't trade bonds. :)

By the way, I don't want to give Vanguard a bad name -- it was TD Waterhouse that gave me that delayed execution and then adjusted the price. (Not that I want to give TDW, which no longer exists as such, a bad name either.)

Ken
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By the way, I don't want to give Vanguard a bad name -- it was TD Waterhouse that gave me that delayed execution and then adjusted the price. (Not that I want to give TDW, which no longer exists as such, a bad name either.)

Ken (and Vanguard customers),

I have never heard one bad word about Vanguard. Just the opposite. Their customers sing their praises.

TDWaterhouse is another matter. Now departed or not, I'll bash them for their gouging. They were a horrible bond broker.

Charlie
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