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Fraud Bailout Fund Hits Wall?
Theresa Tedesco and Barbara Shecter of the National Post report, Fraud bailout fund hits wall (HT: Pierre):
A
recent proposal by a group of Quebec-based advocates to create a
shareholder insurance fund for victims of financial fraud could put
the province on a collision course with Canada's big banks.
The
Coalition for the Protection of Investors (CPI), an organization
comprised of academics and financial industry representatives, says a
compulsory indemnity fund to protect against fraud for Quebec, which
has suffered numerous high-profile investor scandals in recent years,
is running into resistance from the major chartered banks.
Robert
Pouliot, a co-founder of the coalition that tabled the proposal last
month, says the country's large financial institutions have indicated
they are not interested in financing a universal insurance fund for
investors, arguing the industry already provides investor protection
through IIROC.
"There is resistance to the concept of
restitution," explained Prof. Pouliot, a director at the Canadian
Foundation for the Advancement of Investor Rights (FAIR), who teaches
corporate governance and fiduciary risk at the Universite du Quebec a
Montreal. "What the banks don't want is to be taxed directly to
finance the fund or made responsible for indemnifying investors."
Officials
at the major banks confirmed they were "aware of this discussion," but
declined to comment further, saying it is being reviewed by the
Investment Industry Association of Canada (IIAC).
The national
trade association for investment dealers began considering the Quebec
proposal Tuesday at a meeting of its compliance committee."The
proposal is interesting but it's at a very early stage," said Michelle
Alexander, a director of policy at IIAC. The initial response from the
industry, she said, is that while the Quebec proposal "highlights the
need for more investor education and literacy," there is already
protection for investors who use advisors and firms monitored by the
industry self-regulatory agency -- the Investment Industry Regulatory
Organization of Canada (IIROC).
Last month, the cap on settlements reached through IIROC-brokered arbitration was increased to $500,000 from $100,000.
Mr.
Pouliot and the Quebec-based investor coalition asked the provincial
government and the province's Autorite des marches financiers last
month to consider creating a mandatory indemnity fund. Investors would
fund it through premiums and financial advisors covered by the fund
would make contributions.
An independent board of directors,
based in Quebec and composed of industryparticipants, would collect
and invest the money. Premiums charged to investors would be
determined based on the risk practices of investment managers and
financial advisors in an asset class. Investors would pay basis points
annually according to the risk levels in each of the funds in which
they invest their money.
Each year,
investment managers and financial advisors would be rated on their
fiduciary practices by comparing the quality of the practices with the
actual performance of the asset class. For example, if the fund's
performance is good but the fiduciary practices are suspect, it would
be deemed risky and designated accordingly.
Ultimately, the
goal is to improve fiduciary practices in an industry with assets
valued at more than $1-trillion, while providing fraud insurance for
investors. "If you choose a fiduciary riskier manager, then your
premium will be higher. It's the consumer's choice," Mr. Pouliot said.
Although
the Quebec-based coalition has not held direct talks with the
Toronto-headquartered major banks, the industry group indicated it will
not likely endorse the universal compensation fund now on the table.
"We
would like to work with the coalition to discuss the initiative and
see if we can find the right framework that best supports the investing
public and the investment industry," said the IIAC's Ms. Alexander.
While
Quebec Finance Minister Raymond Bachand announced last month that the
province's securities commission would hold consultations to examine
the proposal, he also expressed concern about adopting a plan that
would be an additional burden to investors.
Some industry
participants in Quebec, which already has a limited fund to compensate
victims of financial fraud, warned that mandatory adoption of the fund
could isolate the province from the rest of Canada.
Others
expressed concern over so-called moral hazard, that investors will take
unnecessary risks or be less prudent with their money if they know
their losses will likely be recovered.
But
Mr. Pouliot dismisses the concern saying, "Just because you have car
insurance doesn't mean you drive dangerously. It doesn't make people
any more negligent."
Most of the retirement savings in Canada
are channelled toward the banks, but Mr. Pouliot questions whether
that's because investors believe the large banks are best able to
provide restitution in the event of fraud.
"We're not
protecting against market risk. We're not talking about free or idle
money or blind protection," Mr. Pouliot said. "Just because you think
the banks have more money they'll pay you back if something happens.
You should go to the banks because they are really good, not because
you feel better-protected."
If Quebec
formally adopts the indemnity fund as mandatory, the banks will be
forced to participate -- and the coalition expects that to create
momentum elsewhere in the country.
"If Quebec could launch it,
the rest of Canada will buy into it because consumers across the
country will want the protection," Mr. Pouliot says.
I
met Robert Pouliot in August before leaving for Greece. We discussed
this indemnity fund in vague terms and I was skeptical because I knew
the big banks would fight the proposal. But Mr. Pouliot is a stand-up
individual who has gotten this far and I won't be surprised if he
succeeds in this venture.
On Thursday, I had lunch with my former
boss from PSP Investments, Pierre Malo. We talked about a lot of things
including this proposal for an indemnity fund. Pierre is very concerned
about defined-contribution plans. "People spend more time shopping for a
car than understanding their investments." I told him flat out:
"Defined-benefit plans are no panacea but defined-contribution plans are
a disaster which will only ensure more pension poverty".
It's sad how we expect people to do well with defined-contribution plans
when the truth is there is no way they can succeed in these wolf
markets dominated by high-frequency traders, big banks and big hedge
funds. They're like lambs being led to their slaughter. Don't get me
wrong, you can make money if you're in the right stocks or sectors, but
you got to be lucky, have nerves of steel and you got to be on top of
things. For the majority of the population, this is simply impossible.
An
indemnity fund would pressure professional fund managers to be a lot
more responsible. That's why the big banks are so dead set against it.
Because if they're negligent, they're going to end up paying for their
mistakes. They prefer the status quo where investors are clueless and
helpless so they can continue raping them with outrageous fees.
It makes
me sick to my stomach and one day I'm going to write a blog post on how
to make money by taking everything you learned about investing and
chucking it in the garbage. That's how strongly I feel about the
shenanigans the investment industry keeps getting away with. The
amount of nonsense that goes on in the stock market is criminal. Yes,
the time has come for a fraud bailout fund but I fear that it will go
broke when the next financial crisis hits us.
»
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This fund is not needed. Due to politics, it wouldn't be available if the need arose.
http://www.reuters.com/article/2010/12/18/us-france-lagarde-idUSTRE6BH0V...
@Zerogovt : don't act dumber than you are. If the big players have tilted the table you can be sharp as a knife you'll never know how that table will tilt when you make your next move. Free markets are like zero government...bullshit theories that never exist in the real world. Only in the mind of devious slogan touters...hidden agenda there...
Falak
You can't even read a piece accurately so what chance understanding the market with such built-in senility in your brain?
Regards your, "Free markets are like zero government...bullshit theories that never exist in the real world" ....what woud you know about the real world sunshine??
Here's an example of how deluded and completely ignorant you are to the world about you, of a totally free market worth $100's of Billions per annum : the drug business (illegal drugs)
It consists of supplier/seller and consumer/buyer (the definition of a market) and product/service. It is totally unregulated, has no fuk-wit consumer legislation or groups, yet supplies $Billions of top quality product to its consumers day in day out, year after year for Centuries (not that you'd fuking notice dipshit).
In fact I could list dozens of free markets, legal (car boot sales) and illegal (nearly all products are also available black market such as knock-off jeans, shoes, music etc). All are FREE MARKET and operate without any need of Govt inttervention or any of the other BS (and banking debt) that screws up the brilliance of the free market working at its most efficient/productive/free.
When this 80 year old Western economic Govt mangled shit hits the fan it'll be all the free markets that survive and prosper, and all the Govt regulated ones that'll go bankrupt (see Govt in healthcare, banking, transport, pensions etc etc) and implode in their own shit.
Wake up you ignorant a-hole, reality is passing you by
Exactly, this nonsense of "every man for himself" is just that, nonsense. We regulate the health industry for a reason and even though it's far from perfect, we understand the need to regulate it because our health is our top priority. Yet once we start proposing ANY sort of regulation on the financial industry, right away it's attacked as anti-capitalistic! Unfortunately people have become ideologues, much like religious lunatics when it comes to their market views.
Leo Kockupalot
You are the idealist about regulation with no grip on reality to its 100% failure rate to achieve anything AND its mangling leading to destruction of the market not construction.
You give as your example healthcare. What fuking planet are you on? The US, UK and European healthcare industry is absolutely bankrupt, incompetent AND dangerous to the health of society. The UK's State healthcare is falling apart and killing 1,000's of patients prematurely with its State-run incompetence.
I tell you where regulation has got it. Where it's got every sector (see Banking, transport, energy etc) a protection racket for the Big Boys to cover up the stink of its own incompetence and to screw the free market which would have brought huge efficiency, quality and productivity gains by now instead of the backward 3rd-rate dross Govt and its regulators deliver.
A recent study by an ex-manager showed one NHS hospital killed and maimed 100's of patients per month and nobody even RECORDED the hospitals incompetence. What was the reaction of the regulator who should have been on the job? Pure fuking denial. It should have been doing its job and in any other business killing and injuring people every day, shut down. The NHS hospital Trust itself threatened to sue and the Dept of Health also denied the study and questioned its validity.
Everything Govt touches (and regulates) turns to a steaming pile of crap. Fact, in industry after industry, country after country.
Your articles are a clown show. Your recent one in support of green pensions is beyond a joke. The UK (and US) Govt has already destroyed both the private pension industry and its own public run is going bankrupt (brilliant eh?).
Why are you taking advise from Govt? Whay are you taking advise from a Govt Environment Dept that is the most loony and incompetent institution in the UK??
You recommend a study by the delusional hysterics at the Dept of the Environment on green investing when their own Dept has been devoid of any reality for over 10 years. A sector that is totally washed up after the last 2 international meetings but you're so fuking far behind the curve you're still promoting these abject failures!
You do cock up alot don't you Leo Kockupalot? Get a grip on reality retard and your head out of the Govt and its regulators arses
Leo, the short answer is that you are not smart enough to speak for the rest of us. Your desire to provide leadership is commendable, but short sighted.
Although they say they won't compensate for market risk losses, it won't be long before someone finds a way to use the fiduciary relationship to say all losses are due to some type of fraud.
This fund is nonsense. As investors you take your risk and if you get hit you get hit, that's how it works because next time, you're a much sharper cookie.
Soon as you add cotton wool to the process, a soft pillow to land on, you remove risk from the market of losing your stake and everything goes very sloppy and pear shaped!
Look at the fuking farce that is the FDIC 'protecting' peoples banking deposits. The scheme is more bankrupt than the banks! Depositors are lulled into a wholly false sense of security they cannot lose. But we all know they will, because you can't cheat the game by pretending there isn't a failure mechanism. You can't prevent loss, it's impossible, that's not how anything in life works.
Wether you lose your stake from a bad business or a fraud i don't care. You shouldn't be bailed out. This scheme is going to end up with Big Investors who have the power to prosecute cooking up legal stories to prosecute any business that goes down so they cannot ever lose on their investments.
More socialism for the Big Boys. This scheme is soft headed BS
It time the polar bears kicked out man from the canadian north. Send them all to the US of A where they belong.
The solar fraud is equally criminal. Fraud Bailout Fund?
Guys that perpetrate criminally negligent energy solutions are policing the investment industry. I don't contend that the author is a bad guy. Quite the opposite.
The world is about to implode. And it should. Some dickhead in DC thinks a train is a solution while teachers in Wisconsin are protesting a meager contribution to their future.
I'll stay as long as I can but living on the ocean sounds better every day.
The financialization of society is all it is. As you point out Leo, ordinary people should have nothing to do with 'markets'. Everything now is how to skim profits from whatever - food, cars, T-shirts! If you go into Sears the lady doesn't want to sell you a dress she wants to sell you debt. If you buy a car the finance company is where the 'profit' is - that too short-lived but long enough for the manipulators to get away with it.
The fund won't work - nothing can buy out all the misdeeds that occur every minute of every day. Basically, the pension business is all part of the ponzi and we are all just pawns.