Due to the recent Recession, there has been a lot of discussion around Regulation, the Banking Industry and various Financial Products. But, there has been little talk of examining the Financial System in its entirety and the risk of the governing Philosophies that dictate the System, Firms, Individual Products and their Impact on Society.
The Financial Rules and Regulatory changes that have occurred happened in bits and pieces; many times due to Public Outcry. The danger lies in the fact that the firms and services are interconnected in such a way that a positive change in one place can be a negative change in another. The “2008 Ban on the Short Selling of Financial Stocks” serves as an example. The goal of the ban was to help restore equilibrium to the Market, but it had a negative impact on the Securities Lending Industry. One of the primary functions of SecLending is to provide the securities needed in Short Sell transactions. Due to the Ban, the industry suffered losses at some of the same firms the Ban was meant to protect.
Speakers and Industry professionals at the June 2009 “IMN's NYC's Beneficial Owners' Securities Lending Summit” (http://secure.imn.org/~conference/web_confe/index.cfm?sc=20090615_AI_0031&promo= ) questioned the future of the Industry, in large part due to the implications of the 2008 ban on Short selling.
Both Short Selling and SecLending are financial tools and techniques governed by the philosophies of the Culture, Developers and Users. If the paper created by SecLending was put into producing and selling Viable, Quality, Environmentally Sound Products, Society could incur Gains, not Losses. Right now, it is difficult to tell where much of the Gains from SecLending goes. But, it doesn’t appear to be into the production of goods that benefit Society.
Mortgage Back Securities have been under scrutiny due to Subprime Lending and the Secondary Market; where many of these products were packaged and sold. But, if the Secondary Market included local organizations of homeowners who could invest in themselves and their neighborhoods by directly purchasing Mortgage Backed Securities or Financial Derivatives that included their own mortgages this could create more accountability to the community. The Mortgage Backed Securities sold on the Secondary Market would give homeowners more ownership in their financial futures which could lessen the rate of default.
The Government sponsored PPIP allows private industry to invest in “toxic assets” that may offer future gains. SIFMA and PREA’s June 2009 “Public-Private Investment Program Summit “ (http://events.sifma.org/2009/419/index.html) attracted regulators and investors from numerous organizations interested in taking part in the plan. However, similar programs could be used to expand viable businesses that provide a benefit to society and allow them to take on the market share and resources of ailing firms such as AIG (NYSE:AIG) and Citigroup (NYSE:C).
The problems in these cases are not Mortgage Backed Securities, Secondary Markets or the like; it is how these tools and programs are used. A Hammer and a Mortgage Backed Security can help build a Home or Bring It Down.
'Disclosure: No positions'
'Disclosure: No positions'