Mish's Global Economic Trend Analysis

Going Out of Business the "Old Fashioned Way"
Thanks! (and a Reminder)
Polls Shows American Believe There is Too Much Government Regulation; Government Regulation a Leading Cause of the Housing Bubble

Going Out of Business the "Old Fashioned Way"

Posted: 25 Sep 2012 08:24 PM PDT

One of the more memorable financial ad campaigns in history bit the dust today, that of actor John Houseman who we frequently heard say "They [Smith Barney] make money the old-fashioned way — they earn it."

Smith Barney is no more. It is now "Morgan Stanley Wealth Management" a joint venture with Citigroup.

And so it is ... Smith Barney Officially Bites the Dust

Morgan Stanley announced today that it has renamed its U.S. wealth management business Morgan Stanley Wealth Management, dropping the Smith Barney name from the joint venture it co-owns with Citigroup Inc.

"The Smith Barney name stood for investment excellence for three-quarters of a century, and Morgan Stanley Wealth Management will provide the first-class service that has distinguished Morgan Stanley as a firm for more than 75 years," Morgan Stanley chief executive James Gorman said in a statement. "Today, as we move forward under one name, we are culminating a three-year effort to integrate two outstanding franchises."

Morgan Stanley launched a new Smith Barney-less advertising campaign today.

The ash heap of history is littered with the names of venerable brokerage houses either subsumed into other firms or driven out of business by financial crises. Lehman Brothers Holdings Inc. and Bear Stearns Cos. Inc. are the most recent examples.

Smith Barney was one of the more recognized names on Wall Street for many years. Anyone over 40 likely remembers the firm's 1980s ad campaign in which actor John Houseman intoned in his best blue-blood accent "[Smith Barney] makes money the old-fashioned way — they earn it."

Old Fashioned Video

The above clip from DealBook Can the S.E.C. Win an Insider Case the Old-Fashioned Way?

Over thirty years ago, the actor John Houseman intoned about brokerage firm Smith Barney: "They make money the old-fashioned way. They earn it."

A recent decision of the United States Court of Appeals for the Second Circuit may result in a test of whether the Securities and Exchange Commission can prove an insider trading case the old-fashioned way – by putting on a circumstantial case built around a well-timed trade and contacts with an insider. ....

Ash Heap of History

Supposedly the "Smith Barney name stood for investment excellence for three-quarters of a century" yet they are shutting it down.

How did that happen?

My guess is "they earned it".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Thanks! (and a Reminder)

Posted: 25 Sep 2012 12:56 PM PDT

As a result of a Facebook push late last week, the Les Turner ALS Foundation moved up 25 places from 100th place to 75th place in competition for $5 million in grants from JPMorgan Chase.

That was good enough to win a $20,000 grant from JPMorgan.

Things went viral towards the end, with the winner getting a whopping 93,534 votes. Here is a link to the Charity Leaderboard.

Les Turner is on the 8th page with a total of 2469 votes.

Thanks to everyone who voted. The funds obtained by your support will help to changes lives.It was an uphill battle because the demographic profile of bloggers who simply do not use Facebook that much.

Raffle Reminder and Totals Update

September 27, is the last day on which you can purchase raffle tickets, but donations continue.

If you are unfamiliar with the raffle, please see My Wife Joanne Has Passed Away; Stop and Smell the Lilacs.

The raffle was created in honor of my wife, Joanne, of 27 years, who succumbed to Lew Gehrig's disease (ALS), on May 16 of this year.

Results as of Monday 9-25-2012

Donations $45,266
Tickets $311,400
Corporate Sponsorships $30,000
JPMorgan Grant Campaign $20,000

Les Turner gets half of raffle ticket sales and 100% of everything else. Thus the direct benefit to Les Turner as a result of the above is $250,966.

Corporate Sponsors

GoldMoney and SitkaPacific were $10,000 donors. The other corporate sponsor was anonymous.

Also the Hussman Foundation is matching (Up to $100,000) any donation (not raffle tickets) made between August 29 and September 27.

Please see Investment Conference Featuring John Hussman, Michael Pettis, Jim Chanos, John Mauldin, Mike "Mish" Shedlock, Chris Martenson for details of a Wine Country Economic Conference as well as the Hussman Foundation's very generous matching grant.

Donations From 40 Countries

Donations have come in from 40 countries now, up from 22 on May 15.

If times are tough, and they may very well be, then please consider a cash donation of $10 or more. Every bit helps.

Checks

To make a cash donation by check or money order, please send a check or money order to
Lacey Wood
Mish Campaign
Les Turner ALS Foundation
5550 W. Touhy Avenue, Suite 302 Skokie, IL 60077
847.679.3311 (Main)
Any questions, please call the above number.

Credit Card

You can make a donation or purchase raffle tickets by credit card on the Les Turner ALS Site.

Raffle Ticket Entries are split 50-50 with ticket buyers in a drawing to be held November 8. Ticket sales end September 27, but you can still make a donation at any time.

Some people emailed they did not like entering the information fields required. However, the purpose is only to ensure the foundation knows how to get in touch with raffle winners!

People move, phone numbers change, and email addresses change. It's as simple as that.

The site is secure.

Tickets Sold

There have been 1557 tickets sold. Raffle ticket numbers will be assigned randomly by October 12 with the drawing on November 8.

There are 10 winners, so as of Monday, there is roughly a 1-in-156 chance of winning a nice dollar prize. Compare that to your state lottery!

1st Prize (10/60th of total pot)
2nd Prize (6/60th of total pot)
3rd Prize (3/60th of total pot)
4th Prize (3/60th of total pot)
5th Prize (3/60th of total pot)
6th Prize (1/60th of total pot)
7th Prize (1/60th of total pot)
8th Prize (1/60th of total pot)
9th Prize (1/60th of total pot)
10th Prize (1/60th of total pot)

I expressed prize amounts in 60th's to so you can see 50% (30/60) of the money going to ticket holders. As of now 10th place would be worth about $5,190 and first place a very nice $51,900!

Philosophic Point of View

Whether you make a donation or not, please stop and smell the lilacs. Joanne did, at every opportunity.

Once again ... Goodbye Joanne we love you and miss you.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Polls Shows American Believe There is Too Much Government Regulation; Government Regulation a Leading Cause of the Housing Bubble

Posted: 25 Sep 2012 09:25 AM PDT

Gallup Polls show Little Appetite in U.S. for More Gov't Regulation of Business

Americans say there is too much (47%) rather than too little (26%) government regulation of business and industry, with 24% saying the amount of regulation is about right. Americans have been most likely to say there is too much regulation of business over the last several years, but prior to 2006, Americans' views on the issue of government regulation of business were more mixed.

Question: In general, do you think there is too much, too little, or about the right amount of government regulation of business and industry?

The collapse of Lehman Bros., the failure of the secondary mortgage market, and other business problems in 2008 and 2009 might have been expected to increase Americans' desire for more government control of business and industry. But that was not the case. Americans' views that there is too much government regulation in fact began to rise in 2009, perhaps in response to the new Obama administration and new business regulation policies such as Dodd-Frank, reaching an all-time high of 50% in 2011 before settling down slightly this year to 47%.

There has been little change since 2003 in the percentage of Americans saying there is too little regulation of business. The changes that have occurred in recent years have involved shifts between the percentages choosing the "too much" and "about right" alternatives.

The polls look a lot different if you break down the results by political party.

77% of Republicans say there is too much regulation and only 9% think there is too little.
46% of independents think there is too much regulation, and 24% too little.
25% of democrats think there is too much regulation, and a whopping 42% think there is too little.

Cause of the Financial Collapse

The Democrats are simply wrong. One of the reasons we are in this mess is because of too much regulation. Here several examples.

President Kennedy allowed forced collective bargaining of public unions which eventually drove cities and states to fiscal ruin.
The Fed micromanages interest rates and that was a huge factor in creating the housing bubble. Note the Fed was created as a result of government regulation.
Congress had hundreds of affordable housing programs including Fannie Mae and Freddie Mac. Affordable housing programs and lending mandates such as the Community Reinvestment Act also contributed to the housing bubble
The SEC anointed Moody's, Fitch, and the S&P as "Nationally Recognized Statistical Rating Organization (NRSRO)". Once again this regulation came back to bite years later when the ratings agencies labeled pure garbage as "AAA"

Time To Break Up The Credit Rating Cartel

Let's take a closer look at point number four. I discussed the ratings agencies in depth in Time To Break Up The Credit Rating Cartel

The rating agencies were originally research firms. They were paid by those looking to buy bonds or make loans to a company. If a rating company did poorly it lost business. If it did poorly too often it went out of business.

Low and behold the SEC came along in 1975 and ruined a perfectly viable business construct by mandating that debt be rated by a Nationally Recognized Statistical Rating Organization (NRSRO). It originally named seven such rating companies but the number fluctuated between 5 and 7 over the years.

Establishment of the NRSRO did three things (all bad):

1) It made it extremely difficult to become "nationally recognized" as a rating agency when all debt had to be rated by someone who was already nationally recognized.
2) In effect it created a nice monopoly for those in the designated group.
3) It turned upside down the model of who had to pay. Previously debt buyers would go to the ratings companies to know what they were buying. The new model was issuers of debt had to pay to get it rated or they couldn't sell it. Of course this led to shopping around to see who would give the debt the highest rating.

With that I have to sit back and laugh at one of the original opening statements in this article: "I do not think that the market can discipline ratings agencies sufficiently," said Mr Mindich, chief executive of Eton Park Capital and a former colleague of Hank Paulson, the Treasury secretary, at Goldman Sachs, the investment bank.

Clearly Mr. Mindich does not understand the free market. The problems arose because the free market was disrupted by a misguided mandate by the SEC.

The Solution is Amazingly Easy

Government sponsorship of organizations and intervention into free markets always creates these kinds of problems. The cure is not an executive shuffle, third party verification or half-measures and more regulation that mask over the issues by splitting functions within an organization. The SEC created this problem by creating the NRSRO. The problem is easily fixable. It's time to break up the cartel by eliminating the rules that created it. Moody's, Fitch, and the S&P should have to sink or swim by the accuracy of their ratings just like everyone else. Ratings would be a lot better if corporations had to live or die by them. Free market competition, not additional regulation is the cure.

Government Regulation a Leading Cause of the Housing Bubble

Many point to elimination of Glass-Stagall as the cause of the crisis. They are wrong. Glass-Steagall would not have stopped the securitizion process or passing the trash to Fannie Mae or investors. It would not have stopped the AAA rating scam of Moody's, Fitch, and the S&P.

A case can be made for Glass-Steagall on the grounds that separation of duties wouls prevent fraud, and regulations designed to preserve property rights and prevent fraud are reasonable. However, Glass-Steagall would have done nothing to stop the housing bubble or subsequent crash.

The key point is government regulation, the Fed, and fractional reserve lending are the primary causes of numerous boom-bust cycles.

Regulation should focus on fraud prevention and preservation of property rights, not misguided social agenda like "affordable housing". Government never makes anything affordable.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Tuesday, September 25, 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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