Paul Krugman (NYT): Funds and Games

[Dudley_DUright]

You're selling your house, and your real estate agent claims that he's representing your interests. But he sells the property at less than fair value to a friend, who resells it at a substantial profit, on which the agent receives a kickback. You complain to the county attorney. But he gets big campaign contributions from the agent, so he pays no attention.

That, in essence, is the story of the growing mutual fund scandal. On any given day, the losses to each individual investor were small — which is why the scandal took so long to become visible. But if you steal a little bit of money every day from 95 million investors, the sums add up. Arthur Levitt, the former Securities and Exchange Commission chairman, calls the mutual fund story "the worst scandal we've seen in 50 years" — and no, he's not excluding Enron and WorldCom. Meanwhile, federal regulators, having allowed the scandal to fester, are doing their best to let the villains get off lightly.

Unlike the cheating real estate agent, mutual funds can't set prices arbitrarily. Once a day, just after U.S. markets close, they must set the prices of their shares based on the market prices of the stocks they own. But this, it turns out, still leaves plenty of room for cheating.

One method is the illegal practice of late trading: managers let favored clients buy shares after hours. The trick is that on some days, late-breaking news clearly points to higher share prices tomorrow. Someone who is allowed to buy on that news, at prices set earlier in the day, is pretty much assured of a profit. This profit comes at the expense of ordinary investors, who have in effect had part of their assets sold off at bargain prices.

more...

http://www.nytimes.com/2003/11/18/opinion/18KRUG.html

[papau]

1. Krugman is the only financial writer in large media that can explain in

words the average person can follow.

He is great!

:-)

[burythehatchet]

4. You took the words right off my keyboard

He is incredible. He understands how to make the most complex situation easily understandable for the lay person.

[The Backlash Cometh]

2. Important issue

Must read.

[Beetwasher]

3. The System is So Incredibly Broken It's Not Funny

Eliot Spitzer fucking rocks beyond just about anyone. I can't say that enough.

[Martin Eden]

8. Gaming the system

Just like the S&L fiasco in the 80's, Enron, Worldcom, and the California energy market manipulations, this latest in the long line of fraud & malfeasance demonstartes the danger of enfettered financial markets & "free market" capitalism.

Capitalism (read: free enterprise) works because human energy & creativity is unleashed in the pursuit of profits within a competetive framework. This is great when it results in better products & services, improved efficiency, invention and innovation.

But this same energy and creativity is applied wherever profits are to be had. Just as industry will poison the air we breathe and the water we drink without environmental regulations and enforcement, financial markets, left unregulated and unenforced, will result in the enrichment of the priveleged at the expense of everyone else.

The name of the game is to make money, and you always have to be a step ahead of the other guy. The rules of the game will be pushed and strtched and broken when such lucrative prizes are at stake. Government needs to monitor the game and enforce the rules.

Politicians, especially the repukes, are in the pockets of those who profit by cheating at the game. And the public is fed a bunch of propaganda about how government interference will spoil the game, when in fact without the government interference the game will spoil things for the rest of us.

[Tatiana]

5. Where would we be without Krugman?

Kudos to him for turning the spotlight on this mutual fund scandal.

[tom_paine]

6. kick for the TRUTH

:kick:

[Serial Mom]

7. How much is enough?

It happened to a fund locally here in Wisconsin - President and CEO of Strong Funds, is being investigated.

Thing is, he supposedly did it to gain about $600,000 for him and his family, BUT he is worth about $800 MILLION!

I don't understand! Was he trying to get to $1 BILLION? Why risk so much for what seems to be so little in his case?

Cause these greedy are SOB's just like Dubya, Poppy, cheney, wolfie, rummy, etc., etc., etc. THEY ARE EVIL! No amount of money or security for them or their family is enough!


:mad: :mad: