The Supreme Court Decision – Do We Have the Knowledge To Withstand?

About three years ago, well before the financial crisis, I wrote an article and gave a speech about the predatory deceptive practices of banks and other the financial institutions and why regulators should step in to regulate transparency of financial products sold to the public. The credit crisis was mostly the result of banks telling regulators what the banking regulation should be.

It is incomprehensible that the new supreme court ruling is taking place during the aftermath of the credit crisis. I find it fascination that many still feel so strongly that we should put our personal and political interest in the hands of corporates (see discussion).

Below are excerpts from this article, which I called Can We Trust Them?

Financial products are something I should know about. At least I hope I should, as this has been my living for most of my professional life. But even I got surprised when I recently discovered the level of deception that banks and financial institutions go to lure uninformed clients to buy their products. 

It all started when my mother called to tell me that her bank advisor had suggested a low-risk high-return investment. ‘You can’t go wrong,’ he’d told her. But having been my mother for some time, she remembered me reiterating that there was no return without risk, so she sought my opinion before committing her funds. 

I opened my spreadsheet and started working out the suggested financial investment. It was a very deceiving proposition: …  In professional terms it was a highly leveraged structured product, one of the riskiest financial instruments out there that was meant for highly skilled professionals only. Banks were selling it to uninformed customers. 

… 

So I decided to go around and find out what else banks were selling out there. I picked up brochures from banks in the neighborhood and worked them out one by one. It was nothing short of mass deception. Some of those financial instruments, although seemed simple to the unprofessional, were so complicated that it took me many hours to figure out. Other instruments were plain risky. These were the instruments that banks got stuck with, and could not sell to other professional investors without a huge risk-premium, so they decided to flog them into the retail market. After all, it was legal. 

… 

So my mother was spared the losses, but many of her friends that had listened to the financial advisor, and bought into this investment have suffered tremendous losses when market conditions changed. 

Without regulation and supervision we will all be at the mercy of the legitimate con artists, who will always know about their trade more than we do. But without regulation to protect us, what choice do we have? 

The financial crisis was a big slap, but not yet a knock out. Shouldn’t we do all in our power to increase our chance to avoid the knockout? The new ruling is just a big step in the opposite direction. It shows us that a full blown knock out is the only way we learn.