After 17 years of living on St. Croix and being involved in the investment industry, I find it necessary to make a few points. I have written financial commentaries in the past and my advertising has been geared toward education and how to detect the pitfalls. Our latest experience with the meltdown of our financial system and the bailout should be reviewed in light of the reality of the cause.
Truth be told, many people have developed the attitude of entitlement and are unwilling to accept the consequences of their actions. Our system was built on success and failure. The talented and smart succeed and the ignorant and stupid fail. It has worked for decades, and at times, regulations had to be implemented and adjustments made to correct the actions of the unscrupulous. That was fine, but when it was understood the some regulations did not work, changes had to be made to keep abreast of the situation. That did not happen this time around. I pointed out a year ago, as the housing market started to collapse, that the "mark to the market" rules should be changed, as writing down assets would only exacerbate the problem. In simple terms, if an investor purchases a product with a 10-year maturity and an annualized return of 10 percent, why should he be forced to sell it based on a price offered by a scalper? He set up his portfolio with that as a part of his strategy. Granted, there are cheats who find ways around regulations, but when caught, they should not be let off the hook as we have witnessed.
Another way to have resolved the housing/mortgage problem would have been to go after the agents, brokers, mortgage companies, banks, rating companies, investment bankers, and stock brokers. Reasons aplenty: sales tactics, prudent man rules, fiduciary responsibility, valuation, etc. The list goes on and on.
By not taking appropriate action, the credit crunch worsened and impacted the whole economy. Trillions of dollars were lost in the investment industry. And now we are willing to give billions of dollars of our tax money to those geniuses who got us into this mess in the first place along with those lamebrains who made purchases they could not afford. This is not a new thing, as our economy goes through these cycles periodically. The stage was set in ca. 1980 when the government bailed out Chrysler Corp. Now the CEOs of the auto industry, and a multitude of others, are there with their hands out looking for and getting rescued.
What has happened to our system concerning ethics, responsibility, etc.? In this decade, we have seen huge fines levied against brokerage firms, banks, mutual funds, etc. for duping their investors but very few went to jail. If my memory serves me well, it was 1986 when Harvard University offered the first course in "Ethics" as the young were leaving their nests without any. The white-collar crimes have been going unpunished. The greed has become overwhelming. The judge will not put Bernard Madoff in jail. How many people need to have their lives ruined before action is taken to see justice?
I have been in the investment industry, in three different countries, for most of my adult life and have witnessed investors of all types. The most difficult are the institutions as they are managed by bureaucrats who believe they know the industry. As was disclosed after the stock market bubble in the late 1990s and 2000, a large agency here in the islands lost substantial assets and it turned out they were using 17 investment advisory firms on the mainland, but none of those here in the islands. As I understand it, history repeated itself in the last 14 months. That may sound like sour grapes but for the comment above. We appear to be at the mercy of politicians and bureaucrats as they enrich each other at the expense of those of us who actually work for a living and contribute to the better good. Those local organizations that fell victim to Bernard Madoff, among others, should keep in mind that expertise exists here and those who work, live and contribute to our local economy have more than just personal interest at stake. Our community is small potatoes to those Wall Street firms.
Richard C. McPherson
Editor's note: Richard C. McPherson is the owner of McPherson Investment Advisors, a registered investment adviser here in the Virgin Islands, and has been operating as such since 1995. He started in the investment industry in 1968, gained experience in all aspects of a brokerage firm branch office from clerk, stock broker to branch manager overseeing 40 stock brokers and 30 support staff, 12 years in Germany, 11 years in Canada, before sailing to the V.I. where he has resided since 1992.
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