Monday, November 08, 2004

More Social Security

As I've written before, my opposition to a forced savings plan [note to Democrats: "forced savings" has a nice ring to it, and is in fact what such a plan would be.] is largely due to the fact that it opens the door for Fund firms, one way or another, to loot the US Treasury and to loot these mandatory accounts. Conservative trolls like to write "Oh, but if you lose all your money it's all your fault!" which, after I get a good laugh at how stupid they are, depresses the hell out of me. First, investments are not deterministic. They are risky. People who do well in the market like to believe they're "smart investors." Maybe they are. But, most of them just got lucky. Being a "smart investor" means that you know more than the market does, something which can't exist if we believe the markets are efficient, as our conservative trolls usually do.

Who knows what kind of investment options would be available for people? Why could you, say, invest in a publicly traded company and not your brother's new pizza joint. But, aside from the risk issue - the bigger one is the fact that firms will find big and small ways to skim from accounts. This latest SEC investigationgives us another way they can do so:

The Securities and Exchange Commission is investigating about a dozen brokerage firms - including Morgan Stanley, Merrill Lynch, Ameritrade, Charles Schwab and E*Trade Financial - on suspicion that they failed to secure the best available price for stocks they were trading for their customers, according to people who have been briefed on the inquiry.

At issue is the way the companies executed trades of Nasdaq-listed securities when the markets opened in the morning, a period of intense trading activity resulting from the backlog of orders since the market's close the previous day.

After examining trading data from the last four years, the investigation found evidence that trades were often processed in ways that favored the firms over their clients, these people said.

Securing the best price is one of the industry's critical obligations to investors. If the investigators' suspicions are confirmed, these practices are not likely to add up to significant costs for individual investors - the difference would be pennies a share traded - but in total they could represent substantial amounts of money for the brokers.

The move to decimal pricing has made this kind of activity a lot easier. Firms found guilty of this kind of behavior should be nuked [metaphorically], but of course they won't be.