Investing Curiouscatblog

Tag: regulation

  • Naked Short Selling

    Short selling is when you sell something before you buy it (you try to sell high and then buy low later, instead of buying low and then selling high later). In order to sell short, you are required to borrow the shares that you then sell. So if I own 1,000 shares of Google (I wish), I could lend them to someone to sell. Nothing happens to my position, it is just that those shares are now allocated to that short sale. If I sell them then the short seller has to go borrow them elsewhere or buy the stock to close their position. In general the borrowing is either from brokers that hold shares for individuals or from large institution (mutual funds, insurance companies…).

    However from everything that I read it appears the SEC hasn’t bothered to actually enforce this law much. There was a bunch of excitement recently when the SEC announced it would bother to enforce the law to protect a few large banks, many of whom are said to practice naked short selling but didn’t like it when that was done to their stock. As you can see, this does make the SEC look pretty bad, when they chose to enforce a law, not in all circumstances, but only to protect a few of those who actually take advantage of the SEC’s failure to enforce the law to make money.

    CEOs Launch Web Site To Protect Short Sellers

    In 2005, the SEC required the publishing of the daily threshold lists, which include companies that have a high degree of FTDs [failure to deliver – stocks sold short with the promise they would borrow the shares but they then don’t]. Brokers are mandated 13 days to resolve any FTDs after landing on the lists. Despite this, some companies have been there for hundreds of days, with millions of failed shares.

    Some people find the whole concept of short selling bad since it is based on making money on stock price declines. I don’t feel that way and believe it can help the market. But it requires regulators that actually do their jobs and enforce laws. A favorite tacit of those who seek to keep open special ways for themselves to benefit from abusing the system is to try and make things seem complex. The recent SEC order saying they would enforce the intent of the law to protect a few powerful banks from the behavior many (or most) practice themselves for years shows that it isn’t that complicated.

    Adding the decision not to enforce the requirement to borrow shares to their recent decision to eliminate the requirement that short sales take place on down ticks in price (a measure put in after the 1929 stock market crash to not have short sellers accelerate market declines and insight panic seems like a really bad combination).

    Related: Shorting Using Inverse Funds – Monopolies and Oligopolies do not a Free Market Make – Fed Continues Wall Street Welfare – SEC data on “failures to deliver”

  • Credit Unions Slowly Fill Payday Lenders Void

    As I have mentioned previously credit unions do a much better job than any other financial category of providing customer value. Instead of trying to trick you and rip you off, credit unions often just provide services at a reasonable cost. What a sensible idea. Credit Unions Slowly Fill Void As Payday Lenders Leave D.C.

    In January, legislation went into effect capping interest rates in the District at 24 percent, effectively driving out the area’s payday lenders, whose business model is wedded to annualized rates of 300 percent and above. Credit unions are now slowly filling the void in small-dollar loans. At least half a dozen District institutions are attempting to reinvent the loans as a tool to help bring hard-pressed borrowers closer to financial health.

    The credit unions’ products vary, but generally they are loans of $300 to $1,000 with an annual percentage rate of up to 18 percent. Unlike payday loans, in which borrowers sign over part of their next paycheck for the cash advance, the credit unions’ new products have longer terms, from thirty days to a year.

    It is still an indication of bad personal finances to take the short term loan, but if that is the choice you make, paying a reasonable rate will greatly reduce the damage to your personal financial health.

    Related: personal loans – Ohio Acts to Protect Citizens from Payday Loan Practices – Dragged Down by Debt – Don’t Let the Credit Card Companies Play You for a Fool – Sneaky Fees

  • Copywrong

    In response to: Fair Use Rights by David Bradley

    Copyright is a taking of a public benefit for a private entity. This was put into law in order to increase the total public benefit. The idea was that taking from the public to provide the creator a limited-term, exclusive, government-granted, right to their work would encourage individuals to invest their time in creating works that would benefit society.

    So the debate is properly about how great the taking from the public should be. It seem to me the current situation is completely corrupt. Many of the actions are taking public benefit to provide to the private entity where no possible public benefit exists. Extending copyright periods of long ago created works, where obviously the public is harmed purely for private benefit. No possible argument can be made that their is a payoff to the public for this taking.

    If you wanted to take such an action and made it only for new work then their could be an argument that now a creator knows they have 100 years of government provided rights and therefore investing more time and effort in their work creates new and better work. I don’t believe this argument but at least it is possible. The current actions though are mainly about large companies using government to take from the public to provide themselves private benefit with no corresponding public benefit.

    Lawrence Lessig is the person who has the best insight in this area, in my opinion: The Value of the Public Domain.

    Dr. Deming published his seven deadly diseases of western management a couple decades ago. I would add 2 new diseases: Excessive executive compensation and a broken intellectual property system.

    Fair use is the right to reference (and quote limited portions of) works that have been granted government copyright protection. This is integral to the whole idea of creating the greatest public benefit (even while providing some government imposed limits on public rights to the creator). The large companies now are using lawyers to greatly increase the harm to society by expanding the taking of public benefit. They threaten and scare many into paying fees (or completely avoiding works that have been granted limited government granted copyright rights) where none are are rightly due (see Lawrence Lessig for examples). This causes great harm to society for the private benefit of a few. This is an obvious failure of government. Those countries that are successful at adopting more sensible systems are going to have a great advantage over those countries that chose to continue to increasingly bad practices of harming society to benefit a few private interests.

    Related: What is Wrong with Copyright Taking Public Good for Private Special Interests – Innovation and Creative Commons – Diplomacy and Science Research – More Government Waste – Crazy Watchmen – General Air Travel Taxes Subsidizing Private Plane Airports – China and the Sugar Industry Tax Consumers

  • 2nd Largest Bank Failure in USA History

    I commented on, WaMu Free Checking: The High 3.3% APY May Be Worth A Look, yesterday:

    I agree it is worth considering. It has FDIC insurance. But the bank is not very stable. The stock price, for example, was above 40 in the last year. It is below 5 now. But as long as your entire deposit is covered by FDIC you are in safe (though if a bank goes under – not that likely – there can be a delay in getting your money). Normally a bank’s assets would be bought out by another bank.

    And today I read of the second largest bank failure in the history of the USA, IndyMac Bank seized by federal regulators:

    The Office of Thrift Supervision in Washington, the chief regulator of IndyMac, said it transferred control of the $32-billion bank to the Federal Deposit Insurance Corp. Branches will be closed over the weekend, but the FDIC will reopen the bank Monday as IndyMac Federal Bank, the OTS said.

    Regulators said depositors would have no access to banking services online and by telephone this weekend, but could continue to use ATMs, debit cards and checks. Online banking and phone banking services are to resume operations Monday.

    Federal authorities said based on a preliminary analysis, the takeover of IndyMac would cost the FDIC between $4 billion and $8 billion.

    It is important to make sure your deposits are FDIC insured (in the USA), and to know the limits of the coverage.

    FDIC Failed Bank Information Information for IndyMac Bank, F.S.B., Pasadena, CA

    Principal and interest on insured accounts, through July 11, 2008, are fully insured by the FDIC, up to the insurance limit of $100,000. You will receive full payment for your insured account. Certain entitlements and different types of accounts can be insured for more than the $100,000 limit. IRA funds are insured separately from other types of accounts, up to a $250,000 limit.

    IndyMac was a huge mortgage focused bank. Their stock price had fallen from a high of nearly $30 in the last year to below $5 in April, $2 in May and $1 in June. It is a very good thing we have the FDIC.

    Related: Credit Crisis (August 2007) – Credit Crisis Continues – Homes Entering Foreclosure at Record

  • Monopolies and Oligopolies do not a Free Market Make

    Pretty much everyone (certainly the vast majority of regulators and politicians) have no clue about capitalism. The concept that a “free market” should be allowed to operate is theoretical, based on “perfect competition” (which essentially means zero barriers to entry). Obviously the politicians support, not capitalism (which would require regulation of imperfect markets (and certainly not support consolidation past the point of many competing companies), but the idea that those with the gold make the rules. Natural monopolies (like gas distribution, electricity, likely internet infrastructure…) should be fully regulated companies which then have the infrastructure accessed by multiple competitors (none of which own the natural monopoly – of course).

    With some market that is even remotely in the area where a capitalist free market was in place, it is very simple to not have to deal with companies that treat customers horribly (like Verizon, Comcast, Time Warner Cable…) you just chose another company to deal with.

    But these companies want to have the government allow them to create a monopoly (or something extremely close) and then claim to be in favor of capitalism (and further make ludicrous claims about what capitalism would suggest about regulation in oligopolistic markets). These ideas is so laughable that if politicians had even a sense of economic understanding they would adopt the appropriate capitalist response (for government).

    Obviously, regulation is required as the market moves away from the area of “perfect competition.” When some huge company wants to buy some other huge company (say creating greater than 10% of the market combined) this would be rejected. If the market is a natural monopoly where the free market is not the proper capitalist market (such as one where the government would allow the proper capitalist response to players in the market attempting to break the free market by gaining to much control), then, of course a regulated natural monopoly would take on that economic task. This is not really complicated stuff.
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  • Ohio Acts to Protect Citizens from Payday Loan Practices

    Payday lenders likely doomed in Ohio. Good.

    A hotly debated bill that effectively would spell the end of the short-term, high-interest payday-lending industry in Ohio sailed through the Ohio Senate yesterday despite pleas from lenders that their stores would close and 6,000 employees would be put out of work.

    The Senate was unable to find a compromise that both satisfied payday lenders and eliminated the debt trap that bill supporters said forced too many borrowers to take out new loans to pay for old ones. So it did what the House did last month: dropped the hammer.

    “I think everybody said there is just no way to redeem this product. It’s fundamentally flawed,” Bill Faith, a leader of the Ohio Coalition for Responsible Lending, said of the twoweek loans. The industry “drew a line in the sand, and the legislature kicked the line aside and said we’re done with this toxic product.”

    House Bill 545 would slash the annualized interest rate charged by payday lenders from 391 percent to 28 percent, prohibit loan terms of less than 31 days and limit borrowers to four loans per year. It also would ban online payday lending.

    Yes in a small number of cases payday loans are helpful. In the vast majority of cases they harm citizens and the economic well being of society. Legislators should act to fix practices that harm the economy.

  • Dealing with Debt Collectors

    The best method to avoid problems with debt collectors is to avoid debt problems (Create Your Cash Reserve – use your credit card responsibly – Buy less stuff). But if you do run into problems and get stuck dealing with debt collectors in addition to the financial trouble you may find yourself very frustrated and stressed. The Fair Debt Collection resource of the Federal Trade Commission provides useful information:

    Debt collectors may not harass, oppress, or abuse you or any third parties they contact. For example, debt collectors may not:

    • use threats of violence or harm
    • publish a list of consumers who refuse to pay their debts (except to a credit bureau)
    • use obscene or profane language; or repeatedly use the telephone to annoy someone

    Debt collectors may not use any false or misleading statements when collecting a debt. For example, debt collectors may not:

    • falsely imply that they are attorneys or government representatives
    • falsely imply that you have committed a crime
    • falsely represent that they operate or work for a credit bureau
    • misrepresent the amount of your debt
    • indicate that papers being sent to you are legal forms when they are not
    • indicate that papers being sent to you are not legal forms when they are

    Why is such a resource needed? Because many debt collectors have behaved unethically and illegally. To file a complaint use that link or call toll-free, 1-877-382-4357.

    FTC 2008 Report on Fair Debt Collection Practices Act
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  • Continued Credit Card Company Customer Dis-Service

    As the credit card companies continue to prove they are not interested in providing value to the customer and making a fair profit from the value they provide. Instead they attempt to do whatever they can to get money from customers. I would guess because they can get more from careless customers that don’t block each attempt to take their money than the companies have to pay back or pay in fines.

    J.P. Morgan Chase — What Every Person With A Credit Card Should Know

    I am so angry at Chase Card member services this morning, I could scream. Instead, I will take a breath and just cancel my credit cards. This anger built up is not only against the credit card company but also our government’s bureaucracy. Can we get anything in our country working again? Or is it all about the almighty dollar? Arrgh! I try to remember at what point in our history did making money become more important than operating ethically-I cannot recall.

    Canceling cards from companies that repeatedly treat customers as a source of ill gotten gains is wise. Unfortunately most options seem to be led by the same unethical tactics. Some credit unions seem to actually believe in providing a fair service and treating customers with honesty and integrity (though many just outsource credit card service to a company that has no interest in the mission of the credit union to serve members). During the era of the robber barrons it was accepted that business was amoral. Since then it is understood morality applies in the business world – some people just case less about morality than cash.
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  • Some Movement on Regulating Credit Cards Companies

    Regulators zero in on credit card reform

    On Thursday, the Office of Thrift Supervision, responsible for overseeing the nation’s savings and loans, endorsed a seven-point plan to tackle “unfair” and “deceptive” practices by companies that issue credit cards.

    The plan would allow consumers more time to pay their monthly bill. It would prevent companies from applying interest-rate increases retroactively to pre-existing balances. And it would ban “double cycle billing,” a practice that computes finance charges based on previous billing cycles.
    …
    U.S. consumers were saddled with $850 billion in credit card debt as of the end of last year, according to the Consumer Federation of America.
    …
    “It’s a good first step in addressing a number of abusive practices,” said Travis Plunkett, legislative director at the consumer federation. “However, it will still be necessary for Congress to step in because the proposal only deals with a few of the problems that have been identified.”

    At the same time, legislators could have quite a fight on their hands. Previous efforts trying to reform the industry have largely failed, while recent legislative proposals have found little support among GOP lawmakers.

    The credit card companies pay politicians a great deal of money. That is the reason sensible regulation has failed. Now those fighting for sensible regulation have to have such an obvious case that even those taking huge amounts of money from the credit card companies can’t stymie sensible rules. Remember to follow our credit card tips to avoid the pitfalls that catch so many – that don’t read our blog 🙂

    Related: Legislation to Address the Worst Credit Card Fee Abuse, Maybe – Sneaky Fees – Incredibly Bad Customer Service from Discover Card – Hidden Credit Card Fees

  • China and the Sugar Industry Tax Consumers

    China to Raise Tariffs On Clothing Exports, from the Washington Post:

    The Chinese action would raise export duties on 74 categories of Chinese clothing from token amounts announced late last year to a range of 12 to 48 cents per garment, starting June 1.

    If the Chinese government must reduce the amount of the world textile trade that their country is taking, or face retaliation from other countries, this is a very smart move. Essentially China gets to tax the United States, Europe, etc. and be thanked for doing so by the governments of those countries. Such is the odd nature of international trade these days.

    The Chinese government is going to tax textiles being exported by China. Therefore when an American picks up a shirt at the mall it will include a new tax to the Chinese government and this is seen as a good thing by the American government. An alternative would be for the American government to tax imports. Then the tax paid by the American consumer would go to the United States government instead. It seems odd that the American government thinks it is better to pay a tax to the Chinese government than to the American government but that seems to be what their policy and statements support.
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