INVESTORS' SILENCE SPEAKS LOUDER THAN WORDS (mutual funds probe)

NY POST ^ | November 2, 2003 | TERRY KEENAN

[Liz]

It's been one of the greatest mysteries of the post-Enron era.

Why did the nation's big institutional investors - primarily mutual funds - turn a blind eye to the rampant accounting fraud and other shenanigans that engulfed not just Enron but WorldCom, Global Crossing, Tyco and scores of others?

[Liz]

Terry Keenan on mutuals.

[bvw]

Great-Oompa Charles Ponzi has tens of thousands of grandchildren.

Each one understands the vital importance of not being the last one in, so they work concertedly to maintain the sham ad not cause any panic for the exits or chilling of the popcorn poppers known as retirement plans.

Expect grand news and humoungous puffery about the vitality of the stock market!

[Evil Inc]

"like more independent boards of directors"

The same folks serve on so many boards it is impossible they could actually be more than rubber stamp boards.
So many are in bred and cross grafted to boards its Byzantine

[ARCADIA]

With more than 40 percent of all U.S. stock holdings controlled by just 20 huge investors

So much for "free market" fantasies.

[PGalt]

Good article. Thanks for posting it.

[ghostrider]

With more than 40 percent of all U.S. stock holdings controlled by just 20 huge investors, ....

But don't assume that these "royal families" are using their clout to influence the two major political parties in the US. Everyone knows the US is a free country with equal opportunity for all. /sarcasm

Our nation was once known for its free enterprise. Now, like Europe, we are controlled by oligopolies and monopolies and have become a nation of sheep. It is no wonder that a Supreme Court Justice says the US Constitution should take a back seat to world opinion, and there is but a whimper from America.

[meenie]

It has been like this for years. This is not a new phenomenum. When I was a broker in the mid-eighties it was well established then. I left the business because of the money laundering mainly but was well aware of the cronyism and trading irregularities. The sad fact is that the markets ceased to be a raiser of moneys for companies and instead has been a casino for quite some time. This is why a rising stock market has nothing to do with the business climate. Businesses ceased to rely on stock markets for support, and rely on the ever increasing debt market. This is one more reason our economy is so fragile.

[Hostage]

You are quite accurate with your comment regarding the inbrededness of corporate boards.

We do however have a new phenomenon on the rise made possible by the internet. There are investment forums where investors come together to discuss the companies they invest in. One of the by products is the emergence of forum leaders who have demonstrated their due diligence talents. When such investors poll their share holdings, many find they have enough votes to elect one of their own to a board of a company in which they are invested.

The foregoing is actually happening, is in the whisper stage at the moment and is sending shockwaves through certain corporate halls.

Some hedge fund directors are so frightened that the internet could possibly unite investors that they send boilerroom operatives to disrupt and discredit investment forum leaders.

[Hostage]

The casino nature of the stock market is enabled to a great extent today by the hypthecation agreements required by electronic brokerages.

Today, electronic brokerages hold hundreds of millions of shares on behalf of their account shareholders. As a result of their hypothecation agreements with shareholders (many shoreholders do not understand clearly what hypothecation entails), they "lend" the holdings of the shareholders to a borrowing pool which is then used by others (frequently fund managers) to short the underlying stock.

The fund managers work in tandem with the business press and news wires to look for any pretext to short the underlying. Even if a companies financials are in line with guidance and they post a penny loss, the short hedge will swing the share price down by over 20-25 percent through shorting (e.g. Sprint PCS). The hedge funds also know through paying brokerages for the data how many shares are on margin, and they know where the stops are.

So it is a big arcade game to these hedge funds. They borrow shares, short the stock, wring out the weak hands on margin, take out the stops and cover, all with the cooperation of Wall St. media.

Then they go long and get the stock price up on some puff piece of news and repeat the cycle.

The way to end this casino behavior is to require our legislators to pass a bill that reforms and sets standards for hypothecation agreements. But certain Wall St. icons make their billions through these hypthecation arrangements, so they will not let this go quietly. One of these icons is Jim Cramer, a host of CNBC's Kudlow and Cramer.

[DoctorMichael]

Good, informative article. Thanks.

[ninonitti]

I'm suprised that there's no mention of Putnam's mounting troubles.

[lchoro]

Indexing and index funds are also a big part of the problem. They blindly place their money into the 100 to 3000 stocks that comprise the market index that they're supposed to invest in. Doubt that they do much of anything other than rubberstamp management's proposals on the proxy statement.

[Eric in the Ozarks]

I've got most of my retirement in Strong. Lately, they've been kicking a.. on returns.

[Liz]

The worst is yet to come for Putnam. Their CEO got nailed for timed trades, for God's sake. He musta let everybody and his uncle in on the deal....everybody but shareholders, that is.

[bvw]

Free the market! Let stocks and preferred and bonds and such for small businesses such and pizzerias and car washes be sold on ebay! Let clearinghouses come into existance that package securities from small businesses. Abolish the SEC! Eliminate the tyraany of filings ... let the market police itself.

Let me write a security on myself, couponding 10% of my gross for the next five years ... to finance my college education,. my new restaurant outfitting and stocking cist, etc. To sell to the public, wide-open the market.

[Evil Inc]

Possibly the establishment of local or smaller area(states?) stock exchanges where you could invest in local small business and individual talents. Rules could be established to protect investors.

[Lael]

BTTT!!

[razorback-bert]

Richard Strong, a man who turned the fund company that bears his name into an $800 million personal fortune. Not content with that piggy bank, Strong now admits to improper trades that netted him an additional $600,000 at the expense of the little guys

Greed is good, Richard increased his net worth 0.00075%.

[independentmind]

Free the market! Let stocks and preferred and bonds and such for small businesses such and pizzerias and car washes be sold on ebay! Let clearinghouses come into existance that package securities from small businesses.

How small, BVW?

Do you think that most small companies can afford the addtional overhead related to public reporting requirments, board oversight, etc.?

Do you think that fraud is more likely to occur in a small, thinly traded company, or a large, well-known one?