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Commonsense Financial Regulation
The Wall of News August 9, 2009
This past financial crisis may not be at the bottom, yet. The institutions who have survived are starting to rebound. But, remember this collapse created the final blow to the auto industry and further crushed the housing market.
The Foundation was warning as far back as five years that a crash was indicated within the next 3 to 5 years. This opinion felt that property prices would fall by 30%.
Now that we have gone through what appears to be the bottom, the Foundation is now saying that the devaluation of the currency and inflation will take at least another 25% from the housing market, mostly hidden. The drop will continue most probably as a slow decline, unless something influences the economy with a negative impact.
One of the ways to diminish another financial crisis is to re-design protections that are not specific regulations for investments, but based upon the results. The next wave of financial worries will be the inflation caused in order to either hide how bad this crash was or to help restart the economy. The Government wants to take action so that we do not have another financial meltdown as we had 2008. So far the White House has been offering a token approach to new regulation.
What needs to be done is stop regulating and put rules in place that says a perfectly transparent operation with every dollar of expense documented for the investor be documented in statements will be implemented. This means any and all. direct and/or indirect cost which diminishes returns. If the management is not totally transparent it will be considered fraudulent and strong consequences apply. It is time to keep the regulations simple but the consequences horrendous to the board of directors and the company if things fail beyond legitimate demonstrated risk. Let us consider a first-step set of rules:
1. A financial package, if offered above a certain dollar amount or number of investors, will be registered with the Security and Exchange Commission. This may mean nothing more than a copy to the SEC.
2. Everything is in plain English.
3. All amounts of costs or expenses are plainly labeled, that is everything that is charged to this package which removes a single dollar from profits for any reason. An example which would not usually be in the records, but should: Any expense by the company that influences this investment vehicle. This includes by a parent company offering this investment or any employee or such who privately influences the investment is documented to the investor.
4. An explanation of what should be anticipated, in simple English, be included.
5. A worst case, best case, probable case be included.
6. The investor is paid first before the institution or board of directors.
7. The institution does what it says it will do, again plain English. No hidden or confusing language. (It may be worthwhile to have the SEC approve the language before hand.)
8. There is a difference between risk and fraud. Fraud for any varying degree will mean the investor is covered to legitimate expected returns. No gain by the company will be allowed before investors are paid Expenses may not be subtracted. Fraud in this instance is anything not considered normal actions and are for anything not disclosed.
9. Deliberate fraudulent actions means jail time for all involved, including board members.
10. Fraudulent behavior will expose all members of the company, including the officers and board members to compensating investors. Pensions and homes are included. Remember this is for fraud, not honest risk.
11. All responsible entities must demonstrate best efforts of disclosure and investments while keeping 50% or more in reserves. If reserves drop below 50% investors are allowed out at no penalty and as if the instrument has not matured, pro-rated, and no additional fees or costs.
12. Each investor harmed beyond normal risk as documented within this instrument will be compensated by those creating and approving the specific instruments and by those setting policy that allowed such and instrument to be created.
The intent in this discussion is to make sure that if a problem arises, the investor knows immediately. All actions and expenses, by dollars, are sent to the investor. Were the investors kept informed and with the same information management has? Was all due-diligence used to demonstrate risk? Are all expenses or influences documented that can change the return on investment? If all these are in order. The company and employees are protected from consequences. If in such situation, the risk meets your standards for return, this company would be good company to purchase investments.
Copyright 2009 Wall of News