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Written by José D. Roncal
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Monday, 15 March 2010 19:01 |
Last September we wrote a blog post about the importance of financial reform. It was entitled,Stop Gambling with our Money. Obviously, any meaningful reform would have to result in enough of an overhaul to clean up the debris left from the recent financial meltdown, but more to the point, it would have to set up all the safeguards necessary to prevent any future financial disasters.
We suggested that because the issue was such a politically charged hot potato, Congress needed to get the ball rolling before the 2010 mid-term elections. We didn't expect anything to really happen until at least 2011, but now we are beginning to see the first faint glimmers of things in motion.
Senate banking committee chairman, Chris Dodd, is set to release a bill today, Monday 15th, that could potentially change the regulatory landscape and possibly create a consumer division at the Federal Reserve.
The consumer division would have its own budget and a presidential-appointed director. It would have the power to write rules including the authority to crack down on banks with more than $10 billion in assets. But those rules could be overturned by a two-thirds vote from another group called the risk council. The job of the risk council would be to keep an eye out for potential red flags within the financial system and stop them before they could do any damage.
It all sounds promising, if a bit sketchy, but some kind of reform is needed to restore consumer confidence in our financial system. Of course, as they say, the devil is in the details, and there are still plenty of those to work out, not to mention all the usual partisan bickering to sort through.
Here in a nutshell, are brief highlights in the initial version of the bill:
Any future Lehman Brothers/AIG-like fiascos would be wound down using a faster alternative to bankruptcy, with the cost burden falling to the financial industry, not the taxpayers.
The new consumer protection activity would be established within the Federal Reserve and would ensure that unacceptable products and predatory lending activities would be culled from the marketplace.
More of the risky “over-the-counter” trades, such as derivatives and the infamous credit default swaps, would become more transparent by appearing on electronic exchanges or traded through central clearing houses. |
It's too early to know how all of this will shake out, what proposals will be cut, which will be watered down, how many amendments will be added, what, if anything, will even survive, etc. In fact, by the time you read this, changes will already have been made. But you can expect a continual locust swarm of highly-paid banking industry lobbyists to fight reform on all fronts. There will be plenty of money passing hands and deals cut that we'll never hear about.
But that's how it goes because some things will never change, and yet it's clear that some change is needed.
Regardless of how much consumer protection, if any, is eventually built into the system, in the end you are still on your own. Wherever you choose to put your money, regardless of how sophisticated you may believe you are, or how professional your financial advisor is, nothing is guaranteed. You are never investing. You are only speculating.
If you're in doubt about that, please pick up a copy of our book,The Big Gamble: Are You Investing or Speculating?. Equipped with the sensible information, case studies, and insights that the book offers, you'll be better prepared to proceed with caution. |
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Written by José D. Roncal
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Tuesday, 02 March 2010 00:00 |
In our book,The Big Gamble, Are You Investing or Speculating? you'll find much more than a simple discussion about the differences between investing and speculating. While we do give numerous examples of how so-called investments are frequently nothing more than speculation, we were not casting aspersions against the idea of speculating.
In fact, we devote several chapters to highlighting the accomplishments of some of the world's greatest speculators. People like Howard Hughes, Bill Gates, Steve Jobs, Sir Richard Branson, the Google guys, and others have created entire industries and have advanced job opportunities for millions through their personal risk taking.
If not for these men and their vision, we may have missed the opportunity to experience some of the technological advances and conveniences we take for granted today. What did these speculators all have in common—besides a high tolerance for risk? They understood that innovation was the key.
Today the news is all about the grim economy, failure on Wall Street, polarizing politics, global recession, and the jobless market. It's clear that the shelf life on certain business models has long since expired. We need some fresh thinking, some new innovative ideas, and in today's shrinking world, those ideas have to be cross-border and global.
We're not the only ones that think this way. When you look past the glaring headlines of doom and gloom, you'll notice something more promising underway—a growing movement toward business collaboration and innovation. For instance, a couple months ago we read about a conference being presented by The Wharton School of the University of Pennsylvania. It was called Borderless Innovation: Management Practices, Promises and Pitfalls.
I travel constantly in my work and I've witnessed how globalization and collaboration are transforming the way innovation is managed. In the digital age of social media, most of the geographic barriers have already dropped away. And now, by sheer necessity and a struggle to survive, it appears that some of the barriers between businesses are also fading.
At the innovation conference, nearly 100 managers from a wide gamut of industries came together in a kind of mind meld, looking for ways to share best practices and cross-pollinate ideas for their mutual benefit. I predict that this activity must become the norm for the future if we are going to advance our way into prosperity.
Michael Mandel of Business Week magazine and the conference keynote speaker, noted that most companies—particularly in the U.S.—suffer from an "innovation shortfall." After our book had sung such high praises about some of the greatest innovators the world has known, Mandel's comment was hard to swallow. But the truth hurts, and in this case I believe the more savvy business leaders take this as a wake up call, the more it's going to foster a more open playing field, new business collaborations, and future opportunities to create the next big thing.
Make no mistake, there will always be the next big thing, and it always comes pre-packaged with opportunities to speculate. . . and opportunities to get in over your head by getting swept up in the euphoria of herd mentality. For now, we're going to keep an open mind, stay positive, and watch as things evolve. And we'll keep reminding you to be optimistic—cautiously optimistic. |
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