As this issue of the Investment Guide was being prepared, the subject of financial regulation was front and center at AIER and in the nation’s capital. We had the good fortune of having Dr. Edward J. Kane, professor of finance at Boston College, on campus to deliver a lecture to the AIER summer fellowship program. Soon after his discussion, it was announced that the House and Senate had come to agreement over terms of a long-awaited comprehensive financial reform package.
While we rarely take politicians at their word, exceptions are warranted. No sooner was agreement reached than Senator Christopher Dodd, chairman of the Senate Banking Committee, admitted “no one will know until this is actually in place how it works…”. Though the broad parameters of the bill are evident, in deference to Senator Dodd, we reserve judgment regarding the details of the 2,000 page tome that have emerged.
Professor Kane gave a compelling description of the response to the crisis, comparing it to the denial stage of the grieving cycle. He emphasized human as opposed to structural failures and described “de-supervision” rather than “de-regulation” as the proximate cause of the crisis. He suggests that regulators and politicians owe a fiduciary duty to taxpayers and should be held accountable for their actions in the same manner as trustees of private institutions, and that private sector firms should be required to disclose the true cost of taxpayer financed safety-net subsidies.
The lecture struck us as powerful contrast to the closed door negotiations between Congress, regulators and financial institutions in Washington.
Also in This Issue:
Long Term Government Bonds: The Risk/Return Paradox
What Just Happened? A Closer Look at the “Flash Crash”
The High-Yield Dow Investment Strategy
The U.S. Housing Market
Recent Market Statistics
The Dow-Jones Industrials Ranked by Yield
Asset Class Investment Vehicles
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