Tuesday, August 23, 2011

Securities and Exchange Conundrum

Should the Securities and Exchange Commission even exist?  Does the S.E.C. perform the tasks it is charged with effectively?  Of course we all want functioning, transparent, and regulated markets that abide by the rules of law, and the applicable contracts and covenants; however the S.E.C. has proven to be an utter and complete failure in accomplishing this.

Do you invest under the assumption that the Securities and Exchange Conundrum protects you and your money from fraud, abuse, and market manipulation?  In reading David Einhorn's Fooling Some of the People All of the Time, one can find this (amongst many, many other) highlights on page 399:

In a desperate attempt to prop up share prices, the Securities and Exchange Commission implemented a ban on short selling of financial stocks.  This emergency action, approved outside the usual government rule-making process and unsupported by any factual finding that short selling was indeed a problem, caused a 21 percent two-day spike in the New York Stock Exchange (NYSE) Financial Index in September 2008.  The SEC, charged with fighting market manipulation, instead sponsored the greatest manipulation in history.  It was short lived and ineffective, and ultimately contributed to investors losing confidence in the system.  By the time the ban was lifted a month later, the NYSE Financial Index had already fallen 11 percent from its preban level--on its way to collapsing 68 percent between its September peak and March 2009 low.

Monday, August 8, 2011

Central Bankers and Money Supply

We are quite generous with criticism directed towards politicians, and for good reason.  However, we do admit that central banks/bankers do not receive nearly enough criticism and blame for our present condition.

On recent news of S&P downgrading the credit rating of The Divided States of Entitlement; Alan Greenspan has decided to weigh in with his infinite genius that "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default".  Yes, and if we increase the quantity of the money, does this affect the value of the money?  If prices are contingent upon a money supply being X, and central bankers double the quantity of money...... would prices stay the same?  No.  The price of everything would increase along with the increasing supply of money.  The value of the money would erode and decrease, and the cost of everything would go up accordingly.  Thank you, Alan Greenspan, as you now have even less credibility than before (now equivalent to the credibility of Andrea Mitchell).