Should Schwab cave in? Do home sales tell the whole story?
Posted by admin on August 22nd, 2009
Charles Schwab is a legend, having founded his eponymous brokerage firm 35-years ago. I can think of nothing else (save maybe the Internet) that has leveled the playing field for investors than online/discount brokerage firms. Yet, the legacy is in serious jeopardy as the legend is fighting back against an eager attorney general. The New York Attorney General has become the de facto sheriff of Wall Street, and the position has become a springboard to bigger and better things (it almost catapulted Rudy Giuliani into the White House). Now, current AG Andrew Cuomo is spoiling to get Charles Schwab (the firm) to fork over money for allowing its clients to buy auction rate securities. These controversial investment vehicles gained a reputation over the years as being safe and liquid, and as it turns out, they were neither. The dispute is whether the brokerage firm promoted auction-rate securities in a fashion that made them seem like money market funds or certificates of deposit.
Mr. Schwab is not caving in like so many other firms that have paid back more than $60.0 billion to investors that bought auction rate securities through them. For the founder of the first discount brokerage firm it boils down to personal responsibility and too much government intrusion. Points made in his defense include:
- These are self-directed investors
- Schwab didn’t create auction rate securities
- Firm can’t be responsible for guaranteeing every decision an investor makes. One thing we know in the aftermath of the housing meltdown is that very few people took personal responsibility for their actions. As it turns out, nobody read the fine print, and maybe a handful didn’t read the full print, too. Politicians seized on this reluctance to accept personal blame and responsibility and so now we are on the cusp of a massive wave of new rules and regulations that threaten the very fabric of our great nation.
Tough to disagree with him, right?
On a side note, existing home sales jumped 7.3% from June to July and were up 4.4% year over year in the largest monthly gain since August 2007. Although the sales news was a definite positive, there were a couple of red flags. Inventory jumped by 7.3% month to month, more than offsetting the effect of higher sales as foreclosures persisted. Sales in California also declined as the state’s $10,000 tax credit for home purchases ran out. Why isn’t anyone discussing these red flags? Are home sales up because of the $8,000 credit? What happens when this credit runs out? Will home sales drop again? Sometimes you have to dig into the numbers as the absolute figures tell you very little.
Here are some articles for you:
- If you are looking for ways to earn some extra cash during these tough times, check out this article.
- Here are 18 ways to live below your means.
- A Nobel prize winning economist discusses the failing US dollar reserve system in this article.
-Samir