Thursday, November 23, 2017
Business

A rigged financial system: Top 10 reasons small investors still fear the markets

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Any wonder investors are losing whatever thimble-sized trust they may still have in the stock markets and our financial system?

If there was ever an urgent need for overhaul and tougher sanctions for wrongdoing, here are the 10 latest reasons to act soon:

10 Forget stuffing money in your mattress. Fancy vaults and under-the-bed safes are a booming business as more folks feel the need to stay closer to their money, says Smart Money magazine. Or maybe people feel the need to keep their money farther away from markets viewed as rigged against the little guy.

9 Some big brokerage firms appear to be letting hedge funds get an early peek at analysts' research into the prospects of various companies. The practice lets the funds trade on information before other investors get the word, Gretchen Morgenson wrote in Sunday's New York Times.

8 Big banks like Barclays manipulated "Libor" — a key international interest rate — for their own benefit. It's like rigging our prime rate. Now even Florida is investigating whether the Libor scam hurt the Sunshine State's economy.

7 High frequency computerized stock trading is so influential that it's marginalizing small investors and their ability to compete.

6 The Nasdaq's bungling of the much anticipated Facebook IPO in May reinforced small investor fears.

5 Occupy Wall Street: There's a good reason the protest movement is called that and not, say, Occupy Silicon Valley or Occupy Omaha.

4 After first calling it a "tempest in a teapot," JPMorgan Chase CEO Jamie Dimon has spent much of his time explaining how the bank's big trading loss keeps ballooning and now nears $6 billion.

3 Last month, Rajat Gupta, former Goldman Sachs director and McKinsey & Co. CEO, was convicted of insider trading and conspiracy. It's a high-profile reminder that there are still too many networks of elite Wall Streeters illegally profiting from their positions. We're not even talking about the spree of Bernie Madoff and MF Global rip-offs.

2 Still hard to believe, but stock brokers can put your money in a mutual fund that rewards them a fat commission at your expense as long as the fund is considered "suitable" (it does not have to offer the best return) for your needs. The stock brokers' firm can bet against your trade, too, even after recommending it to you in the first place. That contrasts markedly with true investment advisers, who are required to pick investments that offer the customer the best possible return, to disclose any conflicts of interest and to divulge who pays them. New laws pushing brokers to honor a higher standard are coming but the Securities and Exchange Commission is dragging its feet under heavy Wall Street lobbying.

1 Last but hardly least is our dysfunctional government. First, of course, is the profound national distrust of our "leaders" who can neither get our own fiscal house in order nor decide on a coherent strategy to help people get back to work. Second, our government has failed miserably to address most of the issues listed above. It has either ignored the despicable misconduct in our financial system or policed such activities as if they were grade school pranks rather than a cancer eating away at what little sense of fair play remains.

Contact Robert Trigaux at [email protected]

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