Letter to Editor--05/13/2010--Financial Reform

Submitted May 13, 2010 to Wilmington News Journal

The Senate is debating a bill designed to fix many of the problems on Wall Street; it’s called the Restoring American Financial Stability Act of 2010 (RAFSA). We have all been affected, to some degree, by the Great Recession of 2008-2009, and thus we are all impacted by the proposed solution. There were many, many causes, and therefore there are many areas that need to be addressed in RAFSA.

The issue of conflicts of interest for financial professionals, and specifically the concept of fiduciary, has reached the headlines. This is due in no small part to the testimony of Goldman Sachs employees that they had no obligation to tell their customers what they knew about the doomed products they were selling. (This type of disregard for customers led to $400 million settlement between Orange County, California and Merrill Lynch regarding Merrill’s advice on managing the county’s cash flows, leading to over $1 billion of losses for the county.)

Www.focusonfiduciary.com defines fiduciary as follows: “A financial advisor held to a Fiduciary Standard occupies a position of special trust and confidence when working with a client. As a Fiduciary, the financial advisor is required to act with undivided loyalty to the client. This includes disclosure of how the financial advisor is to be compensated and any corresponding conflicts of interest.”

One of RAFSA’s goals is to protect investors. Currently, when brokers and insurance agents offer you investment “advice,” they don’t have to believe that it is in your best interest. They can recommend securities designed to line their own pockets instead of investments that would be best for you. One estimate is that this results in $25 billion being lost by investors annually that instead lines the pockets of such salespersons. The House version of RAFSA is stronger in this regard than the Senate version—the House insists on the fiduciary standards for all investment advice while the Senate version calls for an 18 month study. Fortunately, there is an amendment from Senators Akaka, Menendez, and Durbin which would insist on this vital investor protection, so that all ‘financial advisers’ that investors rely upon for investment recommendations are required to place your interests first.

I have practiced as a fee-only financial advisor for seventeen years, and have always acted as a fiduciary, as required of investment advisers under the Investment Advisers Act of 1940. The Akaka-Menendez-Durbin amendment is necessary to require all securities brokers who provide personalized investment advisors to retail clients to be held to the same standard. America’s investors deserve no less. The Financial Planning Coalition, comprised of NAPFA, the CFP Board, and FPA®, supports the Akaka-Menendez-Durbin amendment.

Without this amendment, the Senate version of the bill calls for (yet another) 18-month study, a delay that is exactly what stockbrokers and insurance agents want. What do you want? If you want a client-first fiduciary standard of care, let your US Senator know that we need the Akaka/Menendez/Durbin amendment added to RAFSA now!

Paul S Baumbach, CFA, CFP®, ChFC
Mallard Advisors, LLC
Newark, Delaware

Progressive Update—5/9/2010

Note that at the end of this, I included a LONG discussion of two imminent Christina School District items. If you live in my school district, PLEASE read it!

Pennsylvania’s US Senate Primary Race—This Tuesday Pennsylvania’s voters will select whether US Representative Joe Sestak (www.joesestak.com) or US Senator Arlen Specter will be the Democratic Party’s candidate for US Senate. I strongly favor Joe Sestak. If you live in PA, and are a registered Democrat, please vote for Joe Sestak this Tuesday Go to www.votespa.com to find out whether and how you can vote this Tuesday.

Delaware’s US Senate Race—I heard Chris Coons speak this Saturday at a Stonewall Democrats event. He did a great job of presenting the choice that Delaware voters face in November. Mike Castle is a nice guy, and has served Delaware for a LOT of years (too many?). In the past year, it has seemed clear that Castle lacks the backbone, the courage to stand up against the Republican Party leadership, as he has voted against the needs of Delaware voters time and again.
The Republican Party of 2010 is stuck in a time-warp, romanticizing about the days of our founding fathers. In this dream-world of theirs, they fail to remind us that times were good there only if you 1) owned land, 2) were male, and 3) were white. Today’s Democratic Party works to enable ALL Americans to pursue the happiness that the founding fathers offered.

Top reason to vote for Chris Coons—Chris Coons will support the nomination of Supreme Court justices who reject the time-warp view of Roberts, Scalia, Alito, and Thomas, and Castle has shown that he cannot stand up for Delaware when Republican leaders need his vote to try to move the country backward.
Go to www.chriscoons.com to learn more, volunteer, and contribute.

Progressive Democrats of Delaware—I am co-chair of the endorsement committee of the PDD (http://www.progressivedemsdel.com/). I am very excited about the current committee, and our plans to build upon the strengths of our efforts in 2008. PDD next meets on June 2nd at 7pm at DelDems HQ.

National Update—I went to DC last month to lobby for financial reform with Americans for Financial Reform (www.ourfinancialsecurity.org). I posted details of my trip on my blog. I am continuing to work with them to reach out to our legislators, and to the media, to help get real reform passed into law.

State Legislature—There is much going on in Dover in the coming eight weeks. The budget is one of the top issues. Keep an eye on the education dollars—whether the cuts are reasonable or unreasonable. Our children’s future depends on this.

The process called gerrymandering, involving the drawing of crazy district borders in order to ensure ‘safe elections’ to insecure legislators, would be replaced by an open process, if only Senate Bill (SB) 20 (http://legis.delaware.gov/LIS/LIS145.nsf/vwLegislation/SB+20?Opendocument) would pass. Guess who opposes it? Most legilslators, including Speaker of the House Bob Gilligan. Before you contribute a penny to a candidate for the state legislature, ensure that, if elected, they will demand that all redistricting meetings in 2011 are held in public. If they refuse, then refuse to support them.
With the 2011 meetings in the public, we will work on creating an open redistricting commission for 2021 and later cycles.

House Bill (HB) 10 (http://legis.delaware.gov/LIS/lis145.nsf/vwLegislation/HB+10?Opendocument) is being adjusted to provide benefits to domestic partners AT COST the same benefits are provided to spouses FOR FREE. No, it’s not equal, but it is better.. Stay tuned, and prepare to ask your state legislator to support passage of the modified HB 10.

Equality for All, Relationship Equality—With Washington DC’s recent law to permit same-sex marriage, we are closer to bringing relationship equality (likely through civil unions, domestic partnerships, or same-sex marriage) to Delaware. The coalition mentioned earlier is very focused on this. Let me know if you’d like more information. Two groups that I really like, due to their work on this area is www.hrc.org, and www.aclu-de.org.

Don’t Ask Don’t Tell (DADT)—It’s way past time to repeal DADT. We don’t need studies to know that inequality is wrong, and needs to be stopped, now. A bill is in the works in Congress. Be ready to speak up quickly and loudly when the bill is ready to be debated and passed.

Newark—Univ of DE Bookstore—The Newark City Council voted overwhelmingly to approve the University’s bookstore, moving the existing student bookstore from east campus to the central business district, essentially expanding the college campus into downtown. That was disappointing, but not incredible. What was incredible is that Mayor Vance Fund and five of the six of the council members (Paul Pomeroy, Jerry Clifton, Doug Tuttle, David Athey, and Stu Markham) approved the plan which waives the University’s obligation to pay the city $1.1 million for failing to include adequate parking in the plan. The 60,000 square feet of space will bring substantial cars and pedestrians to the center of town, and that $1.1 million would have been absolutely required to address the gridlock that the bookstore will bring to the city. After the council’s past mis-steps with the reservoir, it is unbelievable that the council took another financially reckless move. When do I get my $1.1 million waiver from the Newark city council?

Christina School District—lots to read here

I live in Christina School District, and I often neglect to keep up on school district issues. I regret this. When I catch myself, I try to catch up. This post attempts to catch me (and you) up.

This Tuesday is an election for one of the seats on the school board, currently held by George Evans. There are three candidates who wish to be elected, George Evans, Paul Falkowski, and Eric Anderson. I recommend that you vote for Eric Anderson.

I would like to say that I conducted deep research into this decision, but I did not. Here’s what I did, and what I found.

First off, I know nothing about Paul Falkowski.

I have met with Mr. Evans a few times in the past few years. He has been on the board for years, lots of years. I believe that he has served on the board for over thirty years. Yes, this means that he was partially responsible for hiring Joseph Wise, and the subsequent serious financial woes that the district has suffered (causing the state needing to bail it out and essentially ‘put it into receivorship’). If an election should be viewed as a report card, Mr. Evans deserves a failing grade. If you believe in term limits, then you can consider Mr. Evans to have exceeded his expiration date on the board.

I understand that there are at least two school board members who believe in transparency, a trait seriously lacking in too many government bodies, including school boards. One of these transparency advocates currently on the school board is John Young, who authors a blog sharing his observations of the workings of the school board, at http://transparentchristina.wordpress.com/ . John is also a frequent contributor at www.delawareliberal.net . John supports Eric Anderson.

Eric Anderson is a school teacher (at the Charter School of Wilmington), has served as a teacher’s aide, coach, and substitute teacher. I imagine that for many of you, his credentials as an ‘in the trenches’ teacher makes him an excellent addition to the school board.

He has a facebook page at http://www.facebook.com/pages/Eric-M-Anderson-for-Christina-School-Board-District-A/332529670810 .

Newark blogger Nancy Willing, who attends both county council and school board meetings, endorses Eric Anderson, at http://delawareway.blogspot.com/2010/05/vote-for-eric-anderson-for-christina.html

There is information at the bottom of http://www.christina.k12.de.us/Archive/enews/CSD/2010/0507.htm on the election, who can vote and when (10am-8pm) and where you can vote.

SCHOOL DISTRICT REFERENDUM

The webpage http://www.christina.k12.de.us/Referendum/index.htm has information on the referendum which will be decided on May 25th. There are three ‘community forums’ where you can learn more, including one tomorrow night. These are detailed at the webpage. There is good information on the web, including a fact sheet and a presentation.

My take—if transparency-advocate Eric Anderson is elected on May 11th, then I will vote for the referendum on May 25th. If anti-transparency candidate George Evans is elected, I will vote against the referendum. I don’t mind (at all) spending more money for the education of the district’s children, as long as I have confidence that the dollars will be responsibly spent. I will have that confidence if an additional transparency-advocate is elected to the school board. Elections matter.

Email to Senators--Financial Reform--May 5, 2010

This afternoon I sent this to aides of Senators Kaufman and Carper, aides I met last week:

This afternoon’s Wall Street Journal notes that a deal has been made “Under the Dodd-Shelby deal, Democrats agreed to drop a provision for a $50 billion fund to help pay for liquidation costs, collected from the financial industry. Instead, any costs incurred when the government winds down a firm would be recouped from the industry after the fact.
The agreement would require Congress to approve the use of debt guarantees by the Federal Deposit Insurance Corp. and Treasury. It would also tighten restrictions on the Fed's emergency lending powers. ”
I strenuously object to this arrangement. It calls for the survivors to provide the costs of winding down ‘bad firms.’ This irresponsibly fails to break the moral hazard problems which led to the Great Recession. Financial firms MUST be required to pay into the pool WHILE THEY ARE OPERATING, rather than only after they (or their colleagues fail). The proposed approach is analogous to having the living pay the death benefits to the family of John Smith when John Smith dies, rather than having John Smith pay the premiums during his life.
I recognize that this deal was apparently required by Republican Senators such as Senator Shelby. This does not mean that it is appropriate. From what I’ve heard from Senator Shelby, likely it means that it is bad for the country.
Republicans spend a lot of time decrying having responsible people pay benefits to irresponsible people. The Dodd-Shelby deal is exactly that—assessing no costs to a bankrupt financial firm, and placing the costs on the responsible financial firms.
The original concept of having financial firms pay into a ‘funeral fund’, with the payment consistent with the level of risk they are utilizing is economically, academically, and ideologically sound. Please ask Senator to work to restore the ‘funeral fund,’ and to terminate plans to ‘close the barn doors after the horses have fled,’ as built into the Dodd-Shelby compromise.