Trust – Wall Street – is it Possible?

Recent reports from investment pundits tell us that stocks are an attractive investment. Even if it is true, that is a scary thought for most of us and there are very good reasons to be cautious.

Wall Street players know how to make money on both sides of the trade, some examples are billions made in flash trading that skims pennies off each side of massive numbers of trades using a “sneak peak” technology and programmed trading. It didn’t hurt any single trade significantly but degraded the value of a massive number of trades to steal money out of a lot of people’s pockets. Whether it is illegal is a good question, but it is highly unethical. Add the trading strategy on mortgage derivatives, with banks betting against housing on one side and selling housing investments to clients, illegal – maybe not, unethical – you bet!

Then there is insider trading, not just passively acting on rumors, but actively seeking out people with proprietary information and exploiting those relationships. This is rampant on Wall Street, it is illegal and some of those who have been making huge profits through insider trading are now being arrested and charged with the crime. Laws are only as good as the will to enforce them. We will see if penalties are severe enough to prevent future insider trading.

Then there is MF Global. The CEO of MF Global has a stellar resume, ex-CEO of Goldman, ex-Senator and ex-Governor; Corzine was someone who was well connected who knew how to get things done. Rating agencies saw a bright future. There were no warning signs from the rating agencies and it looked like all systems go as recently as October 2011. Then in November MF Global hit the wall and over $1 Billion dollars of investor’s money vanished overnight. The major problem is that Government investigations now focus on the sins of rating agencies rather than on Corzine. That evades the obvious question, which is, who is more responsible for the MF Global losses? Since rating agencies were not involved in the business activities of MF Global, they cannot be directly responsible for the losses. Logic tells me that Corzine’s connections are working overtime to diffuse the investigation and which protects the leadership of MF Global from further investigation. This distraction of justice only serves to prove that if you have the right connections to power you can get away with “it”.

To restore confidence in Wall Street it will take focused laws that hold even the biggest players accountable, increase the perp walks for those who are involved in crimes and impose penalties that will really hurt, not just be a slap on the wrist and will compensate investors, not just the lawyers.

Until investing in stocks is reasonably safe again, check into putting some of your hard earned money into gold. As with any investment, know what you are buying and do not pay more than 5%-20% over the spot price of gold for gold bullion.

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