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Posts Tagged ‘stock market’

If you read one thing today . . .

Down With Government Oversight
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Overheard:

Despite the Dow Jones Industrial Average bouncing back to where it was before the 2008 economic crisis and despite big profits being reported by many of the companies that were bailed out by the federal government, investors around the world are not too keen on the Obama administration, according to a Bloomberg article by Mike Dorning. It seems the only thing that might make them happy is complete global deregulation.

“The uncertainty around the administration’s approach to dealing with businesses and the lack of clarity on taxes has created an environment where companies are less likely to make incremental investments, which in turn is bad for future corporate profits and hence the investment climate,” says poll respondent Quinten Stevens, 46, managing partner of Stevens Asset Management LLC in Darien, Connecticut. “Hopefully, the recent election results will be a powerful wake-up call to significantly change their approach towards the private sector.”

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The trailer for the new Charles Ferguson documentary, Inside Job, looks great. The movie, which is narrated by Matt Damon, looks at the causes behind the 2008 economic meltdown, i.e. the financial deregulation that began with Reagan, the insatiable greed on Wall Street and the complicity of federal regulators who turned a blind eye to Wall Street’s reckless behavior. The movie had a limited opening this past weekend.

The documentary, which a group of critics voted the best film at the 2010 Cannes film festival, was also praised by Roger Ebert, who called it a “devastating” indictment of Wall Street:

It is a very angry, very carefully argued, brutally clear documentary about how the American financial industry set out deliberately to defraud the ordinary American investor. It was directed by Charles Ferguson (below), whose academic, business and government backgrounds make him unusually well-qualified for this subject. The remorseless narration is by Matt Damon.

Here is the argument of the film, in four sentences. From Roosevelt until Reagan, the American economy enjoyed 40 years of stability, prosperity and growth. Beginning with Reagan’s moves against financial regulation, that sound base has been progressively eroded. The crucial federal error (in administrations of both parties) was to allow financial institutions to trade on their own behalf. Today many large trading banks are betting against their own customers.

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holman2

Everybody knows that insider trading is illegal. Wall Street big wigs who get caught giving their cronies valuable information before it’s made public go to jail. Yet, those same rules don’t apply in the halls of Congress where members, their staffs and other federal officials can use the inside information they gather about upcoming legislation for their own financial gain.

Studies show that Congressional insiders do far better with their stock trades than you and I (See our earlier blog post) . A 2004 study found that investment returns for senators were 25 percent higher than for average investors. In a more recent study, Alan Ziobrowski, a business professor at Georgia State University, analyzed more than 6,000 stock transactions by members of Congress over a six year period and found that members outperformed the market by 1 percent a month and 12 percent a year, which Ziobrowski said was “way outside any random variation.” He and Craig Holman, Public Citizen’s expert on ethics and lobbying, talked about the issue on CNBC’s Street Signs and NPR’s Marketplace. (more…)

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