Posts Tagged ‘Don’t Get Rolled’

"Bart Naylor" "Financial policy"An important report by John Wasik of Demos called: “How Safe are your Savings: How Complex Derivative Products Imperil Senior’s Retirement Security,” came out yesterday.

Fair warning—this report may ruin your day, maybe even your entire week, when you see how the financial industry blatantly prey’s on senior citizens.

This report, a year in the making by an award winning investigative journalist, concerns how financial institutions such as Morgan Stanley and Bank of America currently betray trust by selling so called risk-hedging derivatives to senior citizens. Seniors, of course, care more about risk than any other demographic. They’re generally out of the job market, and depend on that savings account they’ve been socking away for all those decades ideally to make their golden years bright.

For far too long, brokers have been selling their older clients complex investments known as structured products,” writes Wasik. “These products are so risky, and so costly in fees, that some of them are almost sure money losers. They entered retirement portfolios like Trojan horses, and then destroyed people’s life savings. Yet the financial meltdown of 2008 has not chastened Wall Street. Brokers and banks continue to sell these high-risk investments to people who can’t afford major losses.”

Wasik’s monograph documents that in 2010, banks and brokers sold more than $52 billion of these products. Why? “Mostly because they are hugely profitable to the banks and brokers themselves,” Wasik finds.
Profitable for the banks and brokers, certainly, but genuine losers for seniors, as individual investors have lost at least $113 billion. And counting.  That $113 billion in losses could be a tenth the actual number from these toxic time-bombs, “since most burned investors don’t confront their brokers or win back their money,” Wasik speculates. “Even when investors discover that they’ve lost money, the system is designed to thwart efforts to recover such losses.”
The products hide under inscrutable names: reverse convertibles, equity-linked, buffered or enhanced notes.  A derivative is a gamble based on the outcome of some other instrument, such as a stock, bond, a collection thereof, or an index such as interest rates, or foreign exchange rates. They’re called “derivatives” because their value “derives” from that other instrument.

Chief culprits?  They may be on the list of the largest firms Wasik names: Morgan Stanley, which controls 18 percent of the market; Bank of America with 16 percent; Barclays, with 13%; JPMorgan, with 9 percent; and rounding out the Top Five is Goldman Sachs, with 8 percent.

“Many individual investors are still struggling to recover catastrophic losses suffered from investing in complex derivative-based vehicles that tanked in 2008,” Wasik writes colorfully. “Now, long after the top banks were bailed out and recapitalized by taxpayers and the Federal Reserve, Wall Street continues to sell these dangerous complex products, which lie in wait, ready to unleash a shocking new wave of financial pain.”
There may be a role for these complex instruments. Derivatives, based on complicated mathematical formulas, once traded only in the province of sophisticated institutional investors, who only held small portions of them in multi-billion-dollar portfolios. But, observes the Reuters columnist and author of “The Cul-de-Sac Syndrome,” “In recent years, these complex “structured” derivative products — wagers based on other financial instruments — have been falsely repackaged by Wall Street as ways to preserve principal for yield-starved Main Street investors.”
This trend was documented by more than a year’s worth of research involving interviews with investors, state securities regulators, investors’ attorneys and officials with the Securities and Exchange Commission (SEC).

Wasik also proposes solutions, namely for Congress to fund the SEC more appropriately so it can police this mugging ground better. Wasik’s report comes from Demos. Demos is a non-partisan, New York-based public policy research and advocacy organization founded in 2000. But perhaps Wasik stops short; why not ban the sale altogether to any but the sophisticated investor? That’s the suggestion of Janet Tavakoli, a consultant Wasik interviewed: “These notes flunk the suitability and appropriateness test for retail investors. They also flunk the test for most investment managers, investment advisors and pension fund managers.”

Or we could simply read Wasik’s report and weep.

Today’s Flickr photo:

Flickr photo by suratlozowick

If you read one thing today…

Here’s a way around the campaign finance law that a number of presidential hopefuls are exploiting.

Rather than establishing a federal political action committee to help pay for the cost of exploring the feasibility of running, some hopefuls are using state organizations instead. Donors  give to multiple state organizations, thereby avoiding the donation limit for a single federal PAC.

The Washington Post described the scheme:

On a single day in October, Eldon and Regina Roth each wrote separate checks to political funds set up by Republican Mitt Romney in five states around the country. That allowed the South Dakota beef barons to donate $190,000 – well beyond limits for contributions to federal political action committees.

The state-based funds are among several creative – and perfectly legal – strategies embraced by potential GOP presidential contenders as they lay the groundwork for 2012. The efforts amount to an aggressive and sophisticated preliminary campaign, in which candidates exploit incentives and gaps in the nation’s patchwork election system.

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We’ve seen an extraordinary amount of enthusiasm in recent weeks for our effort to build a grassroots movement for a constitutional amendment to restore free speech and fair elections to the people.

In our recent survey, activists across the nation expressed interest in supporting our effort to undo the Supreme Court’s disastrous decision in Citizens United v. Federal Election Commission by gathering petition signatures.

So we created a printer-friendly version of the constitutional amendment petition (PDF), a tip sheet about how to gather petition signatures and a web page where activists can pledge to collect signatures.

We’re already coordinating with activists in Washington, D.C., who are planning to help us gather signatures at several events, including Jon Stewart’s Rally to Restore Sanity. And we’re encouraging activists across the nation to help build the movement by gathering signatures in their own communities.

Petitioning is a fundamental way to show Congress and others in power that the American people demand action against the threat to our democracy posed by the flood of unlimited corporate money into our elections. And we’re convinced that once they hear about it, millions more will join this cause.

As Americans gather this fall for events ranging from local festivals and concerts to political rallies and demonstrations, everyone can play a critical role by collecting signatures.

So take the pledge to gather signatures for the Don’t Get Rolled petition. If you have any questions or ideas, don’t hesitate to get in touch with us at action@citizen.org.

The folks over at the Center for Competitive Politics, a right-wing think tank, must think corporate front groups who run campaign ads are totally awesome.

They just issued a poll that they claim demonstrates public opposition to the DISCLOSE Act – even though their own numbers actually demonstrate broad public support for disclosure!

Jesse Zwick over at the Washington Independent skewers the poll – scarily titled, “Voters skeptical of intrusive disclosure.”

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In today’s WaPo, columnist E.J. Dionne says that the Supreme Court’s decision in Citizens United v. Federal Election Commission, which gave corporations the green light to spend unlimited funds in elections, was either “the most Machiavellian in American history or the most naive” decision the high court has made.

In Citizens United, the court’s “5 to 4 conservative majority broke with decades of precedent and said Congress had no right to ban corporate or labor union spending to influence the outcome of elections,” Dionne said. “The decision is Machiavellian if

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