Regulation Could Jumpstart Market
Small investors don't trust them. We think they're rigged. The country that unrigs them stands to profit.
Five years ago, 65% of us said we were invested in stocks. That is down to 50%, according to Gallup. Why? Because we feel ripped-off.
Two years ago, Michael Golub estimated at Advisorperspectives.com, individuals had $8 trillion parked in money market funds -- more than four times the level of corporate cash. That figure is probably higher now. Imagine what that money could do to the Dow Jones Industrial Average (DIA) or Nasdaq (QQQ) averages.
Golub saw this as a buy signal. The markets are about psychology, he believes, and you buy when investor psychology is bad. I'm more interested in what can be done to change investor psychology. The lesson that keeps coming back is that we invest based on trust.
Back in the early 1980s, when I began my reporting career, companies outside the U.S. were anxious to list their securities here, because U.S. rules on accounting and reporting were strict. Following them did not just get these companies on the "Big Board," it made them more credible to domestic investors.
That has changed in our time. The U.S. won't even agree to the International Accounting Standards Boards rules, which Reuters notes we promised to do in 2009. A single global accounting standard would improve many industries, like insurance, writes Bill Kennedy for BusinessInsurance.com.
Today the biggest and fastest-growing Asian companies don't list their stocks here? You can't buy Korea's Samsung or China's Baidu on the Big Board, the way you could buy Japanese companies back in the day. Why should they list here, if our financial regulations are no more trustworthy than back home?
I would argue reporting rules for the U.S. should be stricter than global standards. They should be the gold standard. The fact that they're not hurts U.S. investors, leaving the best opportunities to private equity, who are likely getting the kind of transparency on results you're not getting.
Don't tell me this would be an unfair burden. In an era when everything is computerized, we're talking about manipulation of software, not "paperwork."
David Kornblau, who was the SEC's chief litigation counsel during the first Geoge W. Bush administration, recently wrote for Bloomberg, the SEC should be continuously monitoring what happens on our markets, as regulators do with nuclear power plants. Empowering regulators to close down the action before a catastrophe would yield greater public confidence than a hindsight-oriented approach, he writes.
This idea of regulating for profit sounds strange, but it has worked well in the gaming industry, Reuters writes, and if Macau is seen as a threat to that the answer does not lie in surrendering to organized crime. Chinese investors are also becoming leery of their stock markets, says Forbes due to a lack of transparency.