Today's Wall Street Journal includes a special "Wealth Manager" section, the primary feature of which is "Seven Questions to Ask When Picking a Financial Adviser." The questions are generally sensible, though #2 ("What do the adviser's clients say?") can be problematic due to the prohibition on the use of client testimonials.
But here's our primary objection: Only in the last paragraph of #6 ("Can the adviser put it in writing?") does Shelly Banjo raise the fundamental question in the financial services industry: "Whether the advisers are going to take on fiduciary responsibility, in which they are legally bound to act in your best interest."
By our lights, that should be the first question, and a negative answer should pretty much make all the rest of the questions (and answers) moot.*
Then see this summary of the recurring, still-cresting waves of mortgage resets. Note that the biggest spike is in the ugliest category, the notorious option-ARMs, where loan values have actually climbed for many borrowers (due to their payment of less than the standard interest due), even as home values continue to fall:
Calculated Risk isn't quite sure of Said's analysis, but whatever the particulars might be, the reality is that inventories are still too high for many (most?) markets to reach any sort of price equilibrium any time soon.
Conservative investors were stunned when their corporate
bond funds took double-digit losses in the frightening market
collapse of September-October 2008. Long-term corporate bonds
fell 16 percent through October, according to Ibbotson Associates--their worst performance on record.
That wasn't supposed to happen. In bad stock markets,
investors expect their bonds to rise in price or at least hold
flat. Instead, for the first time, all the major asset classes
fell together. In February, they were all savaged again.
Yep. As David Swensen has longnoted, for portfolio diversification and risk-management purposes, treasury notes and bonds have substantial advantages over corporates, which can (and when it matters most, do) behave too much like their equity cousins.
We're woefully late with this, but March 25th was The Float's birthday. We'll mark the occasion by sharing our 10 favorite posts from this blog's second year. (Click here for the first year's Top 10.) In chronological order...
"Anything too big to fail is too big to exist." So writes Simon Johnson in "The Quiet Coup," an important, provocative piece in the May issue of The Atlantic.
We think that's pretty much the line of the year, and it points to the importance of bringing financial institutions--and, in some ways, finance itself--back down to a more appropriate size. "The Obama administration's fiscal stimulus evokes FDR," Johnson writes, "but what we need to imitate here is Teddy Roosevelt's trust-busting."
How did we get here? This is just the beginning:
In its depth and suddenness, the U.S. economic and financial crisis
is shockingly reminiscent of moments we have recently seen in emerging
markets (and only in emerging markets): South Korea (1997), Malaysia
(1998), Russia and Argentina (time and again). In each of those cases,
global investors, afraid that the country or its financial sector
wouldn't be able to pay off mountainous debt, suddenly stopped lending.
And in each case, that fear became self-fulfilling, as banks that
couldn't roll over their debt did, in fact, become unable to pay. This
is precisely what drove Lehman Brothers into bankruptcy on September
15, causing all sources of funding to the U.S. financial sector to dry
up overnight. Just as in emerging-market crises, the weakness in the
banking system has quickly rippled out into the rest of the economy,
causing a severe economic contraction and hardship for millions of
But there's a deeper and more disturbing similarity: elite business
interests--financiers, in the case of the U.S.--played a central role in
creating the crisis, making ever-larger gambles, with the implicit
backing of the government, until the inevitable collapse. More
alarming, they are now using their influence to prevent precisely the
sorts of reforms that are needed, and fast, to pull the economy out of
its nosedive. The government seems helpless, or unwilling, to act
Top investment bankers and government officials like to lay the
blame for the current crisis on the lowering of U.S. interest rates
after the dotcom bust or, even better--in a "buck stops somewhere else"
sort of way--on the flow of savings out of China. Some on the right like
to complain about Fannie Mae or Freddie Mac, or even about
longer-standing efforts to promote broader homeownership. And, of
course, it is axiomatic to everyone that the regulators responsible for "safety and soundness" were fast asleep at the wheel.
But these various policies--lightweight regulation, cheap money, the
unwritten Chinese-American economic alliance, the promotion of
homeownership--had something in common. Even though some are
traditionally associated with Democrats and some with Republicans, they
all benefited the financial sector. Policy changes that might
have forestalled the crisis but would have limited the financial
sector's profits--such as Brooksley Born's now-famous attempts to
regulate credit-default swaps at the Commodity Futures Trading
Commission, in 1998--were ignored or swept aside.