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At Arm's Length: 07.20.04
The average investor is not anymore on the sidelines anymore than a fan sitting
in the stands. In fact, from your vantage point, you should be able to see
the whole game unfold before you, allowing yourself a unique prospective of
a truly unique time.
Today's Commentary: 07.19.04
The Rules: How to Change Investing
Among life's most important rules listed at Everyrule.com are the following three:
"The Female always makes the rules. The rules are subject to change at any time without prior notification. No male can possibly know all the rules.
John Irving once approached the topic of regulations in his book turned movie called Cider House Rules. Although the tattered list was posted, mostly ignored and thought by the apple pickers to be unrealistic pronouncements from a detached boss, they held a sort of moralistic message within their intent.
As the movie theater screens opened with the latest Will Smith action picture released this past weekend, "iRobot", the Three Laws of Robotics scrolled down the screen during the opening moments of the movie. They are:
1. Robots must never harm human beings or, through inaction, allow a human being to come to harm.
2. Robots must follow instructions from humans without violating rule 1.
3. Robots must protect themselves without violating the other rules.
The movie, I have read, is a loosely based adaptation of the Asimov collection of stories in which he coined the phrase robotics for the first time. I am mostly disappointed to find out that they did not go with the previously published script written by Harlan Ellison in 1973.
Although there are many fine regulations in place governing all sorts of events, they are not always as transparent as they could be. Rules as explored in the previous examples must find some way to adapt themselves to ever changing attitudes. We rely on referees and umpires and in the case of money, regulators to apply the close scrutiny needed to be sure that the intent is achieved and fairness is equal. Even as the everyday Dick and Jane begin to ask questions that were a matter of trust only five years ago, the financial industry is balking.
Asimov's rules for dealing with the possibility of artificial intelligence gaining the ability to think, reason and ultimately overthrow their creators was not something to be feared. The creation of "devices" comes with consequences but it is, he suggested, irrational to hoist Frankensteinian beliefs on something designed to serve, protect and otherwise accomplish the meaningless.
At the heart of his rules and quite frankly, any good list of what to do and what not to do is the implied decency for the overall good. Labeled optimistic even in the innocence of the fifties, Asimov's rules are easily applicable to Wall Street.
Some would argue that the nature of the money game requires a certain amount of cut-throat camaraderie, even a well established good old boy network. America watched the legal system disagree with that notion last week as Morgan Stanley was slapped with a healthy fine because of their unwillingness to include female employees in some dealings that may have furthered their careers. How much trust can you place in these folks who don't even take care of their own?
Acting as some sort of monetary and often artificial intelligence, the rule of never harming an investor has found the Security and Exchange Commission and it's Republican chief at odds with those who claim to party stalwarts and therefore above reproach. Evidence of this dismay was nearly verbalized last week when the chairman, Mr. Donaldson, who was smoked by Eliot Spitzer numerous times has taken the hedge fund industry to task.
Hedge funds are the backbone investment choice for wealthy investors that contain large sums of money expertly directed by industry renowned managers. Many of these managers have been lured from the much stricter (read lower earnings incentives) and better regulated (read scandals, Spitzer and Donaldson, oh my!) mutual funds for the wide open ranges of the hedge. But far too many have kept a long toe in the previous door, many by way of conflicts of interest.
If the first rule of protecting investors were in place, the amount of money invested would have no bearing on their ultimate goal of creating wealth. Because this is not always the case, this could have some long needed regulation coming to the last frontier of Wall Street.
At the heart of the current matter is politics of course but even more importantly, transparency. The skillfully robust returns some of these funds have given wealthy investors, the lackluster performance of the markets this year so far, and the lack of volatility have had some less wealthy investors, pension funds, and institutions eyeballing this territory for better returns.
Hedge funds argue that registering with the S.E.C. will simply slow the process of making money. And as they adjust to a more open door policy, it may happen. Treasury Secretary John Snow and Federal Reserve Chairman Alan Greenspan voiced their objection to changing what they perceive to be unbroken.
The mutual fund industry, unable to regulate itself, is now being forced to adopt some rules that would have been unnecessary if the had abided by the first rule - no harm to investors. Hedge funds must also take the same medicine now or as some members of Congress have warned, the legislation is likely to be much more acrimonious should investors complain. The collapse of Long Term Capital Partners in 1998 could have been prevented with this rule.
This would all be a mote point if rule number two, requiring no Wall Streeter to follow orders to harm any investor, large or small were also in place and exercised with fiduciary glee.
Rule number three, just as Asimov suggested so trustingly, should be a simple rereading of the two previous rules. He understood that these were fraught with flaws in their simplicity and open to legal wrangling. But we are not dealing with the unpredictability of robotic intelligence. We are dealing with the understanding the the higher master will always be the investor, not those that reside where we place our trust.
The Blue Money Report
Financial Commentary covering a wide range of topics concerning money, investing, and how it effects the average investor and their financial health.
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