Tuesday, March 20, 2012

We need an Investor Bill of Rights

There is no question that investing these days is very tricky business. In fact, any dealing with Wall Street is quite treacherous these days. It is caveat emptor, let the buyer beware, every step of the way. Sure, it has always been that way, to some extent, and us diehard investors are quite used to it and have all sorts or tricks to navigate through the investment minefields, but it is plain and simply dysfunctional and  unacceptable for the average investor. What we need is an Investor Bill of Rights that makes it once and for all relatively safe for the average American to invest in anything other than a simple bank savings account or CD. Even money market funds are far more risky and tricky (and less profitable) these days than once thought.
 
I don't have even a preliminary draft for an Investor Bill of Rights yet, but it is something to start thinking about.
 
The point is not to eliminate all risk or guarantee a high rate of return, but simply to assure that average investors are protected from severe predatory behavior on the part of the denizens of Wall Street. Once it was only a bunch of hedge funds and due to their limited size they could be tolerated, but now every big bank is trying to run itself like a hedge fund, so what in the past was marginally tolerable is now definitively intolerable.
 
The goal will not be to eliminate all conflicts of interest, but to render them manageable, to assure that there are very clear limits to how far banks are allowed to go in acting against the interests of their customers. We need to restore the meaning and value of the term fiduciary duty.
 
The goal will not be to eliminate speculation and short-term trading, but simply to assure that speculators and traders cannot attack the assets of average investors. In the past, speculation and trading was simply "noise" and little concern to serious investors, but now it is the speculation and trading "tail" that is wagging the once-mighty investment "dog." Put simply, we need a solid firewall between investments and the casino betting of speculators and traders.

-- Jack Krupansky

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