David Callaway: Wall Street’s giving tips again; time to worry
One sure sign that the markets may be getting ahead of themselves this summer: Wall Street banks are recommending each other’s shares again.
Bill’s take on this: Yes, we should all be very, very afraid. It always bugged me that banks recommended banks, the “watchdog” SEC and Moody’s, S&P, and other rating agencies not only didn’t “get” the economic downturn we’re all living in, but they showed a complete negligence about the disaster. Further, they all have conflicts of interest.
For example, the rating agencies. Take S&P. (Please!) They “rate” securities, presumably on risk. The riskier the underlying securities, for example, on a bond, the riskier the bond, the lower the rating. (First off, does anybody understand the rating system? Why can’t it simply be A-F? Why quadruple double-A, which means, not so good? I made that up, but you know what I mean.)
However, the S&P benefits by giving good ratings. If a company gets poorly-rated, they don’t do ANY business with S&P, which has a whole host of business services it sells Wall Street firms.
In the interest of “transparency,” then, a rating agency really should have no other duty. I don’t know how they’d make money, but that’s for them to figure out.
You cannot tell me that the “risk” side doesn’t take the potential lost business into consideration. I bet the “risk” side even takes some heat from the revenue-generating side.
Used to be, investing in an index was a sound investment idea. Now that all the parties are having affairs and inbreeding, I’m not so sure.
David Weidner’s Writing on the Wall: Do Madoff victims expect too much?The Bernie Madoff spectacle, once compelling for illustrating the grandeur and scope of his fraud, is in danger of losing its relevance, says David Weidner.
Bill’s take on this: While Bernie Madoff belongs in jail getting whatever it is that other prisoners wish to dole out on him, he’s paying for his crime. The victims, on the other hand, need to be compensated for being defrauded. HOWEVER, their retribution should come only from Madoff and whatever assets and future income he and his estate receive. It should NOT come from the SIPC (which insures up to $500k). At the very most, 500k should be covered by, yes, us, the taxpayers; anything above that limit should be borne by the dumb shareholders who participated in a “too-good-to-be-true scam.”