Vol. 12, No. 3,009 - The American Reporter - October 19, 2006



Market Mover
WHAT WALL STREET NEEDS FROM SANTA

by Mark Scheinbaum
American Reporter Correspondent
Lake Worth, Fla.

Printable version of this story

LAKE WORTH, Fla., Dec. 11, 2002 -- Santa George looked down from his sleigh and decided that Wall Street needed a new ribbon-wrapped Treasury Secretary, SEC Chairman, and Chief Economic Advisor.

Santa George was wrong. What Wall Street and the tens of millions of Americans need to restore confidence in their investments, and as a reason to climb on a bull market, is common-sense reform. This week's action by CALPERS, the largest pension fund in the world, was a good start. CALPERS' board gave the boot to Merrill Lynch and Credit Suisse/First Boston and told them their (alleged) portfolio management skill and investment advice is no longer welcome, or needed. Thank you and good-bye. Oh yes, don't let the regulatory door hit you in the butt as you leave. While New York State's attorney general and individual shareholder suits might augment Justice Department action - which seems slower than a squooshed Tootsie Roll on a Manhattan sidewalk IN aUGU.S.T - money managers can and have taken action. If the average Joe and Jane investor, big trust companies and mutual funds follow suit, there will be a rush on Argus, Value Line, Wright Financial, Morningstar, S&P, Moody's, Fitch, Duff & Phelps, and other truly independent researchers or raters of stocks and bonds. Here's my own Christmas list for Santa George to fill. Delivery on Christmas Day will bring a smile to investors a year down the road:

  • Mandatory Ratings Every brokerage firm "recommendation" must include the S&P or Moody's rating on the stock, even if the broker is in competition with the rating agencies. If the stock is non-rated, an explanation must be included (e.g., too small, too cheap, too sleazy, etc).
  • Capital Gains Tax Cut Farewell to capital gains taxes. Get with the program all other Western democracies have adopted. Stop billing citizens for money they simply roll over and reinvest every year, such as CDs and mutual funds. This is a middle-class issue, not a "rich people" issue. Millions of Americans don't sell stock for badly needed home improvements or other expenses BUT because of the "tax consequences."
  • Warning Labels on Nasdaq Federal regulators require serious-looking warning labels on booze, tobacco, and other items any reasonable person would find dangerous to their health and safety. What about most Nasdaq stocks, which are traded among a clique of "market makers" with little transparency or scruples?

In between football games and glitzy "business" reports from Times Square, let us require a warning on print ads, on radio, or on the screen: "With the exception of Microsoft, Intel, and a few select large capitalization stocks which are also tracked in the major Dow Jones indices and have investment-grade ratings, many, if not most, Nasdaq issues are not investment grade, and not prudent investments for poor and middle-income people, or retirees seeking preservation of principal and moderate, long-term capital gains."

  • Free-Agent Director Lottery Each and every one of the S&P 500 corporations must add members which will cumulatively represent at least one-third of their current boards. These new directors shall be selected from the current list of registered shareholders or designee (bank, trust officer, etc). This will be an open, lottery-style drawing, similar to the procedure used successfully, and fairly for years for the "extraordinary lottery (call)" feature of old municipal coupon bonds.

The new directors must not be a current director of any public company; must be 18 years of age; and, must be citizens of the United States; must have never been convicted of a felony; and must possess a high school diploma or GED. The new directors shall serve for a term of office not less than three years, and then be replaced by the same method. Usual and customary fees and expenses shall be afforded them. If followed, the overall quality of decisions, oversight, and debate at board meetings will be improved.

  • Defense-Like Rules Pentagon contractors and officials can't resign and take a government job without a waiting period. The same would be required of appointed government officials. Wall Street and corporate execs from listed companies would be required to be involved in paid or volunteer work outside of the investment industry for a period of at least 24 months before showing up in the Cabinet, an ambassador's spot, or at a regulatory agency.

If nothing else, that rule will put a damper on the Goldman Sachs-type patronage merry-go-round where Mr. Republican Big Shot holds the corner office on the 26th floor, while a floor above or below the resident Mr. Democratic Big Shot has a similar office. Depending upon whose pals are elected, one of the two offices is vacant every few years. Now, that's real campaign reform!

Mark Scheinbaum is chief investment strategist for Kaplan & Co. Securities, www.kaplansecurities.com and shares a small office on the fifth floor with no windows and no big shots.

Copyright 2006 Joe Shea The American Reporter. All Rights Reserved.

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