March 28, 2007
I've written this to the President and Christopher Cox already, so you may just want to trash this and save the time and forget your grand-children?
I have taped recordings of regulators that cannot be attached to this email.
My firm was a tiny mutual fund applications only firm. Shortly before the NASD/NYSE merger plan was announced my company resigned from the NASD after asking for, and being refused, a one-month extension for a routine NASD examination, we have had no complaints since 1984. Essentially I refused to be humiliated again over the amount of business I was creating.
Micro Sense: Now that the merger news is out it is obvious why the request for extension was not approved. And we have been damaged by the omission that would have been considered securities fraud if it were done in a securities prospectus. I wonder when exactly the NASD Districts became aware of the merger and how many small firms they screwed during that time period.
Macro Sense: There are more serious possible unethical dealings with regard to a loophole in the law concerning self-regulatory settlements out of court. If the general public should become aware of such dealings wherein regulated firms pay off a regulator because it is cheaper than making customers whole and the regulator allows it without totally informing its members it could discredit the entire securities regulatory process.
Our request for an extension was brushed off as if nothing was happening; however, it is clear now that NASD players were maneuvering - for as much as three months before our dealings - for positions with the NYSE in the negotiation. I feel certain that the District 1 Director based here decision not to extend on it unethically.
The NASD examiner, supervisor and District Manager were negotiating "in bad faith," clearly unethical in any profession except regulation. A part of the maneuvering before the merger proposal was obviously designed to eliminate as many small firms as was possible.
My company had been a member of the NASD without complaint since 1984. Although we had complained several times about the pettiness of the regulation we experienced concerning antiquated regulation.
Milton Friedman, PHD, Advisor to President Ronald Reagan, passed away recently. After reading and listening to him I suspect he is turning over in his grave with this latest bureaucratic move to eliminate competition in our capital markets regulation. However, his wife may still be available for comments and they should be sought. I believe she would tell you that this merger makes no sense except to the bureaucrats trying to keep and increase their power in a feckless regulatory bureaucracy gone wild. Our capitalist economy and its people deserve better, our grand children demand it.
Current regulation should be replaced by a far more market oriented regulation with a much smaller regulating entity footprint and one pushing free markets with small firms providing real competition for large firms - not large firms providing political pro quid for more regulation on small firms as seems to be the trend during the last decade.
For example, continuing education that requires a course in ethics when regulators are dealing with small firms "in bad faith" begs the question of honesty. Furthermore, half of the courses are a total waste of time and the other half deal with antiquated regulations, many of which do not apply to smaller broker dealer businesses. On balance they are designed to burden small businesses and as such pose a constraint on trade and anti-competitive influence.
This merger, if carried out badly, would turn the regulatory environment from bad to terrible and impact capital markets in a most adverse way.
In the 1990s I was involved in the base closure proceedings out here in Northern California and it is completely obvious that the goals were the best access to health care for military veterans and they were thwarted. The issue was providing access to care; however, now the operative concept is providing access to hospitals by interns and research, not access to patients.
In a similar fashion government bureaucrats, especially the NASD, built a feather bed beside their politically savvy downtown Wall Street political sponsors from Wall Street and for their own convenience, not for access of regulation to the many small brokers that need their help, best practices to avoid problems, etc. When a NYSE firm has a problem it is regulated by the NYSE, not the NASD. So why locate offices in urban centers? In fact, more recently it appears that the convenient socialist - Elliot Spitzer - is more effective getting us a level playing field for investors than either NASD or NYSE, that is how bad the situation is.
Most of the small brokers need regulatory consulting, but that seems to be done in Las Vegas and other vacation spots the NASD leaders want to visit. And it is absolutely the most hypocritical policy that an economy based in capitalism can have. Our true place in capitalism is raising capital for credible risk taking with consistent regulation, not regulating the cost of the industry because it is the only element we understand. To bring costs of investment down entry into the securities business should encouraged, not cost regulated.
That the NASD should position itself downtown in posh offices in New York, San Francisco, Los Angeles and Miami to regulate small brokers is absurd. If we need capitalism in Tucumcari, NM, - and we do - we need regulation with access - mainly consulting - to mutual fund brokers there. The rent is cheaper and NYSE firms can arbitrate the majority of their cases in their own offices, not those provided by small members.
Main objective: get NASD type capitalism out to Main Street, now. Completely overhaul the mutual fund business, get it entirely out of Wall Street control.
Maybe a merger of the NASD into the NYSE might make sense if we were really pruning the tree of regulation, but this tree needs a couple of limbs sawed off. So to merge the bureaucracy at Rockvile with another one in New York without cutting the small broker dealer limb and at least half of the leaves makes no sense whatsoever.
Let our citizens - and tax payers - become better able to take care of themselves via truly free market capitalism. Don't move Wall Street to Main Street, build Main Street capitalism. That is the future of our grand-children unless Islam fertility takes us over.