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Table of Contents

Small Broker Dealers Need to be Preserved
Alice Rivlin Needs to Listen to Claire Gaudiani
Modest Proposals to Mute the Pain of Recession While Reducing Overall Government Spending
The Works of Mercy
What Two Thousand years of Christianity has Brought
French Nuns have had a Particular Role Shaping Catholic Attitudes in St. Louis
Hindsight is 20/20; But to Benefit from the Truths Revealed They Must be Stated and Studied
The Brokerage Industry Adopts the Pervasive "Excessive Fee" Model of the Commercial Banking Industry
Federal Courts Put “Don’t Ask, Don’t Tell” in Their Cross-Hairs
Advantages and Disadvantages of Small vs Large Enterprises

Until a Christian/Islamic Westphalia Comes - Co-habitation Won’t Work

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Small Broker Dealers Need to be Preserved - The small broker dealers, particularly those composed of older, experienced, smaller producing brokers, are a good entity for America to preserve. They provide a place for beginning investors to receive "one on one" personalized education about the markets and information about how certain investments might be more or less suitable given their temperament and/or their financial responsibilities. This is true because such firms with such brokers are not possessed of production quotas that force brokers to cater exclusively to the richest prospects (and clients) they can find. Usually such older small producing brokers are either personally well off (or have accepted a less opulent life style than they might have wished for as younger men). These brokers possess a wealth of knowledge and enjoy sharing their knowledge with others. This means they are not driven by the need to maximize production.

Currently the regulators are pushing to eliminate as many of these small broker dealers as possible. In the last 18 months, over 600 small firms, out of a universe of 5000, have closed, or been forced to merge with larger firms. There is an interesting statistic that illustrates what's happening. In 1990, a small firm could expect periodic regulator examinations conducted by one examiner over perhaps 4 days. The overall exam would take 4 to 6 weeks from initial announcement that an exam would be conducted to the final response on changes required because of the exam. Today such a firm might expect periodic exams conducted by 2 or three examiners over 2 weeks with the entire process from beginning to end taking four to six months.

The reasons for this pressure on the small firms are a little unclear. Perhaps, the bigger firms need more client assets since they experienced great losses in their accounts following the crash of 2009, and perhaps these large firms want to replace those lost retail client assets with the assets coming out of these small firms as they close. It must be remembered that the large firms are in strong a position to influence regulator policy right now because they were the favored recipients of TARP under the "too big to fail" policy. So as regulators have beefed up their rule making and examination staffs in response to the market crash the big firms with full time legal and compliance staffs have been actively encouraging regulations which would be easily accommodated by the large firms but difficult for small firms to implement.

A big part of the problem for small firms are their inability to pay for the support staffs and computer departments needed to keep up with the flood of new rules, much less actually implement them them properly. The regulators know these small firms lack the resources to keep up so they use these firms as a way to build up their statistics "number of firms sanctioned", "number of firms fined", number of firms closed". As the regulators "take these scalps", the investors with limited resources are finding it increasing difficult to find a knowledgeable broker who will take the time to educate them, explain various courses of action to them. The pressure on small firms have come just as brokers at big firms are actually told they can not open accounts for prospective customers who have less than $100,000 or $200,000. So large firms are moving out of the business of servicing small investors.

This essay should not close without reminding the reader of certain great philosophical principles separating "moral law making" from "immoral law making". Generally laws to be moral must be 1) few in number, 2) state simply, so all affected by the law can easily read and understand the law, and 3) finally, the law must be changed only when absolutely needed. Thomas Aquinas went so far as to say all change was suspect and should "on principle" be opposed until overwhelming necessity is demonstrated. Of course, the reason for these rules are obvious - it is better for society if men can do their work “year in and year out” knowing, with some confidence, they are operating within the limits of the law without having to check "week in and week out" about the current state of the law and/or regulation. Of course, some lawmakers would say its "ok" to violate these principles so long as all regulated entities are treated the same. This is false thinking. Stalin was not exempt from the strictures of the mortal law simply because all Russians were equally oppressed by him.

Clearly financial regulators are either ignorant of these long standing philosophical principles or are willfully choosing an immoral path..................(prepared by Hugh Murray on 10/10/2010)


Alice Rivlin Needs to Listen to Claire Gaudiani - In mid Aug 2010 Alice Rylin took caller questions on C-SPAN one morning. One caller asked why America is not solving its unemployment problem by bringing back the manufacturing facilities formerly shipped to Asia. The caller felt America needs those jobs. Rivlin was instantly opposed. "No", she said, America will employ its people by getting the rest of the world to open up to our high tech products.

High tech products are largely made by robots and highly trained workers, like computer programmers. High tech products are usually made in places where lots of capital has been deployed and relatively few low skilled people are employed.

Also in August C-SPAN Book TV presented a book on the importance of philanthropy. The author, Claire Grudiani, the former president of Connecticut College, is very interested in keeping philanthropic money flowing in an uninhibited way so it might be used in the most creative manner possible. She points to the Carnegie money that was given to dozens of small towns if they presented a reasonable plan for maintaining the facility. She points to the March of Dimes that raised millions for research into polio, and ultimately Dr. Salks' success. She goes further to point out that such philanthropic money has benefitted directly, or indirectly, every person in America. She asked her audience to think of the many doctors, and other professionals, who provide Americans with life long service after receiving their training in institutions largely funded by philanthropy. In passing, during her presentation, Ms Grudiani said America needs creative philanthropy because 15% of America is essentially "third world".

This brief remark puts the situation in America in sharp perspective. America is a polyglot society with people of many backgrounds, of varying levels of interest in education, and of diverse capabilities. The society has first world, second world, and third world components. That is not to say one type of life is more desirable than another, but it is simply to say this diversity exists and must be accommodated by those who plan for, or think about, what employment opportunities, housing facilities, educational programs, etc. will be available in America going forward.

And so returning to Alice Rivlin remark about high tech products, it becomes obvious that this long term Washington insider is refusing to see, or at least acknowledge, Ms Grudiani's multi faceted America. Therein lies the heart of one of America's biggest problem, a systematic failure to acknowledge wide variation in America's cultural and societal structure. To state the obvious about all these difficulties and all these challenges, no problem can be successfully addressed unless it is openly acknowledged.

Alice Rivlin is as entrenched and as well connected in the Washington establishment as any person. If she would speak frankly to a dozen of her long time Washington interlocutors - progress could begin getting:

. 1) low skilled jobs back from Asia to America. (Of course, some apologize would have to be made to China, Vietnam, etc as these factories left and protective tariffs were reimposed to shelter America’s labor intense manufactures. But I'm sure these Asia friends would understand given the chronic underemployment America is experiencing amongst its third world populations.)

. 2) The educational programs appropriate for the students in the neighborhood would have to be implemented. It is true that the children of "third world" level American parents would be steered into educational programs appropriate for these students so they might follow their parents into low skill level jobs. This steering would be augmented by a life long educational program designed to allow these students, if interested, to move from "third world" status to a higher status over time using their spare time. Since it is likely that most of the "third world" level children would lack much interest in this long term educational program, it would be inappropriate to subject all these students to this higher level material.

. 3) These unemployed of the America's "third world" would probably function most successfully in smaller communities where life is simpler. Such communities could receive the factories as they returned from Asia and incentives such as cash payments might be used to encourage and ease the relocation of "third world" Americans from large cities to these small communities with their newly relocated factories.

. 4) Housing should be allowed to develop naturally. Many such town had formerly lost factories to Asia so housing (or the infrastructure for new housing) already exists. Other towns might need to put in new working class neighborhood infrastructure, streets, sewers, etc.. The arriving "third world" Americans would get a housing allowance that would allow them to buy, or build, housing that met local BOCA codes.

. 5) A medical clinic might be needed if the local community lacked comparable facilities already.

. 6) The stress on the local town's civic and social service infrastructure could increase, but with preparation things could be managed. It should be remembered that "third world" people are better able to help each other if the social grouping is smaller and more closely knit. In a city people tend to be more anonymous, feeling less group cohesion and responsibility. There tends be more irresponsible behavior when people feel less connected. In small communities everyone would feel more responsible (and the few that didn't would be more easily reigned in by internal group social pressure rather than by outsiders, e.g. police, judges, jailers, etc., as happens in the cities.)

Alice R. is approaching her 80 birthday, she has only a few years to use her considerable influence to get America moving on a more rational course. ........................ (prepared by Hugh Murray on 11/1/2010)

Modest Proposals to Mute the Pain of Recession While Reducing Overall Government Spending - There a few things that might be done in this recession to make everyone’s life a little bit better.

First, consider what happens in a recession. Demand drops and businesses fire people. Government tax receipts decline and government deficits rise. The unemployed go on the jobless roles and collect unemployment payments; thus making the government deficit even worse.

With these facts in mind consider the following:

1) As the unemployment rate rises, government workers (federal, state, and local) and those receiving government retirement checks could receive minor pay cuts. The cut should be a 3% cut on government checks for each one percentage point of unemployment above 4.5% which is the frictional unemployment rate and which can't easily be penetrated on the downside.

2) The savings from these cuts should go to reducing the gov't debt or, if the government unit has no debt, to repair infrastructure.

This two step program would do several things:

1) it would show gov't leaders that they really don't have to be fearful of mass rioting by retirees or the mass departures of government workers, if they get tough on compensation and payments, after all everyone is willing to sacrifice a little in a time of recession.

2) it would set an example for the private sector which might adopt across the board percentage pay cuts rather than the firing of selected individuals .

3) If adopted at all three levels of government (federal, state and local) the savings could amount to a trillion a year of less deficit in a fairly deep recession of say 9% unemployment.

Of course one could argue that final demand, already anemic in any recession, would suffer even more as government workers and retires cut back on spending. But the reduced government borrows would free up an equal block of capital in the private sector. This would likely be used in the private sector to create private sector jobs and install updated equipment that would make Americas more prosperous and productive in the future. ......................(prepared by Hugh Murray on 11/3/2010)

The Works of Mercy - The Catholic Catechism beginning in para 2447 lists these works of Mercy and speaks about the importance of giving alms to help the poor. At the beginning it is probably best that the complete list of both the spiritual and corporal works of mercy be given with a few comments on each. The seven Corporal Works of Mercy are:

To feed the hungry.

To give drink to the thirsty

To clothe the naked.

To shelter the homeless

To visit the sick

To visit the imprisoned

To bury the dead

It should be noted about the above that they all require a person to get off his "duff" and do something useful for another person. Of course, many of these activities can be hired done and the Church recognizes this by encouraging alms giving.. This immediately calls to mind the fact that local and federal programs exist by the hundreds to perform these functions for people as well. But nothing is perfect, government programs tend to be uni-directional, that is these programs involve giving to the needy while requiring very little in exchange. Because of this feature they might be classified as "giving a man a fish" type programs rather than "teaching a man to fish" type programs.

Marvin Olasky, a social scientist and historian from Texas, has spent much energy investigating this one sided kind of giving. It was his research that caused Gingrich and Clinton in the 1990's to revise the "aid to dependent children" program putting into the program a work requirement for mothers with children over the age of six.

Olasky's research has shown that charity run by churches is more effective than programs run by gov't agencies. Why? Olasky's conclusion is that private programs work better because they can and do require "quid pro quo" changes in behavior in order to get the charitable aid. So consider a few problems where quid pro quo's systems might be set up.

1) should a homeless person be required to move to a place that had jobs even if it was, in say, rural Idaho?

2) should a woman who has three children out of wedlock by three different men be required to live in an institution with her children that restricted the unsupervised access of men? and

3) should those who seek permanent handicapped status, with a lifetime of social security payments, be required provide services in their home: tutoring kids, talking to house bound older people via the phone, do work in the home for companies that need hand work like stuffing envelopes for direct mail companies, etc.

At this point an interesting historical note should be mentioned. "To visit the imprisoned" was originally listed as "to ransom the captives," referring to the ransoming of Christians taken prisoner during conflicts with Moslems. This involved a highly motivated Christian taking the place of a fellow Christian who had been captured in a battle and perhaps had a family at home.

Now turning to the seven Spiritual Works of Mercy which are:

To counsel the doubtful

To instruct the ignorant

To admonish the sinner

To comfort the sorrowful

To forgive all injuries

To bear wrongs patiently

To pray for the living and the dead.

Unlike the Corporal works of mercy, these require that a Catholic think, pray, and perhaps carefully chose appropriate words about what is required.

What attitude of mind is appropriate? What comment should (or should not) be made? Consider: the timing of the advice, seeking divine guidance through prayer, feeling compassion for the person in psych pain, informing one-self of best approaches to a problem first, etc. All of these could, indeed likely will, be needed to successfully implement these works of mercy.

With regard to the first three spiritual works of mercy, it is important, in this time of imprecise thinking and a "make everyone feels good" ethos, that those who would undertake to provide these services be aware of the ways a person might inadvertently fall into sin themselves. The following list sets out the nine ways that a person can commit sin without being the prime sinner himself. (These are provided with examples of each pitfall).

By counsel (I would recommend that in this difficult situation you should get an abortion)

By command (You must falsify that expense report or you will lose your job.)

By consent (I think it would be a good idea for you to marry that divorced person.)

By provocation (You should beat up that guy for stealing your girlfriend)

By praise or flattery ( You look sexy in that bikini)

By concealment (I'll cover for you; I'll tell your parents you stayed at my house last night)

By partaking (You and I working together can rob this company blind)

By silence (I won't tell anyone you molested that child)

By defense of the ill done (You had no choice, you had to tell the doctor to inject your elderly aunt with the lethal overdose)

As one can see there are lots of ways to get into moral hot water while thinking that a troubled person is simply being given succor.

A final thought or two about all 14 works of mercy.

First, Mercy grows out of the Theological virtue of Love or Charity. It is similar but different in that there is a person to person engagement.

Second, doing these works is not optional they are required for salvation.

Third, they require thought as well as words or action. This is not work to be done in a rote way.

Finally, and most important, these works must be done with the right frame of mind. These are not simply humanistically motived person to person efforts. These must be motived primarily by a desire to do Christ's work on earth, to follow His direction. .........................(prepared by Hugh Murray on 11/11/2010) Note: Remembering the eleventh hour of the eleventh day of the eleventh month, let us all pray for the souls of the men from both sides that died in the trenches during WWI, what a waste!

What Two Thousand years of Christianity has Brought - Christianity is a religion marked by some striking opposites. The religion is outwardly focused on learning the truth of the world and the creatures and things it contains. However, the religion is just as strongly focused on the inner self. Also true the religion calls people to strive for perfection while teaching that all men are sinners and incapable of the perfect. Men are taught that freedom is their natural state with all that implies for self reliance, inventiveness and achievement while equally being taught that all are depended for their life and salvation upon God's will and grace.

All this has created a civilization of men who explore unceasingly the greater and lesser universe about them learning how God put it all together and how he keeps it functioning. They see God as the whole truth and so it is man's job to learn about God by discovering as much as possible of God's creation. These men also explore themselves and the mysterious relationship between themselves and their maker. They recognize their special relationship with God because of their free will to do good and/or evil and their ability to recognize the existence of God in the created universe. The Christian sees himself as a fallen being called to explore all about, to love self and others, to repel evil, to do good, and to spread the news about how to live a better material and spiritual life to the rest of mankind.

Sometimes Christians have taken a process or invention from another culture and improved it, but mostly they have devised new things themselves. Far from keeping these improvement secret Christians have taken them out to the rest of the world. Christians were the first to begin moving down the path toward the end of serfdom and slavery; just as they were the first to insist on equal dignity for woman, after all the Mother of the "God-Man" Jesus was a woman. Christians developed and/or adopted meditative and contemplative techniques that help man get in touch with his inner self and his inner deep connection with God his maker. Beginning with Christ in the garden of Gethsemane , to the desert hermits, to the monks of St. Benedict, to St Bernard of Clairvaux, to Francis of Assisi , to St. Joan of Arc, to St Teresa of Avilia, to St Rose Philippine Duchenne, to St. Bernadette at Lourdes. Christian history is full of people who have looked deeply inside themselves and discovered God lovingly waiting to establish a special relationship, ready to give special insight and understanding about the full meaning of human existence and the requirements for them of their particular point in history. These insights have been shared with the world in the great Christian works on the spiritual life by such writers as Louis De Monfort, Ignatius Loyola, and John of the Cross.

Have Christians had a particularly profound impact on the last 2000 years? No doubt. For a better statement of the ideas expressed here - see the last two dozen paragraphs in the second volume of Paul Johnson's book The History of Christianity. .............(prepared by Hugh Murray on 11/20/2010)

French Nuns have had a Particular Role Shaping Catholic Attitudes in St. Louis - St Louis was originally settled by the French and early Catholic bishops leaned heavily on French religious orders of nuns to bring Catholic education to this mid-western river city. These orders were several in number - the Sacred Heart, the Visitation, the St. Joseph Sisters of Carondelet, etc.

These nuns founded schools for girls and young ladies. In these, they taught the particular brand of Catholicism that they had learned in France. This was characterized by several features:

1) fidelity to the basic truths of the faith, not so much to its passing fads or personalities,

2) a sense that religious faith was not a compartmentized thing but rather sometime that animated all of one's life - at home, out shopping, at social events, doing charitable works, etc. Faith was manifest by religious art tastefully displayed about the home and adorning the body, it was manifest in speech as religious reference was worked easily into daily conversation, it was manifest through outward behavior of compassion for those in pain, etc.

3) teaching that the faith was three legged: prayer, study and action. Like a stool, a faith without all three was destined to fail,

4) showing that the faith was to be seen as somewhat separate from particular priests or bishops, such leaders, while needed, were transient; the faith was everlasting.

5) instilling a strong sense that one's faith is a manifestation of a personal relationship between the believer and Christ. This personal relationship is strenghten by daily prayer, daily meditation on the truths of the faith, and daily contemplation of the pivotal events in the life of Christ and his followers. Such a prayer life requires a)the cultivation of silence, b) the practice of using certain devices, such as the Rosary, to help focus the mind, c) setting aside adequate time, d) seeking out quiet places, such as a chapel where the Blessed Sacrament is present, for prayer, etc.

These nuns educated several generations of young Catholic women who in their households and in the broader society gave Catholic St Louis a deep, authentic, non-pushy faith that softly permeated social events, corporations, civic organization, schools, clubs, etc. Catholic values are expressed by St Louis businessmen at meetings without them even recollecting that they had learned these ways of thinking and speaking at their mothers' knees.

But why were the French nuns so good at planting these seeds of belief and practice in their pupils? What in their background back in France gave them particular preparation:

First, there is the reality of being French women. These woman, be they religious or lay, are the masters of the beautiful understatement that simultaneously emphasizes the importance of what's conveyed and causes the observer to remember the message for the longest time. A French model has it. A French female politician has it, Even a French receptionist or simple housewife has it. These nuns have it as well. The information being conveyed is different in each case, but the retention effects on the recipients are similar. Several generations of young St Louis woman have absorbed these subtle communication skills from these French nuns.

Second, there is the emphasis on the important. In a quiet way these nuns said "remember these truths; put aside the fads and personalities of the day". Said the right way, this religious value system could shape the pupil for a lifetime.

Third, the religious intrigues and conflicts that France experienced in the two hundred and fifty years from Calvin through the Huguenots and the Jansenists, no doubt, left these nuns with institutional memory of the importance of a well integrated, orthodox belief presented in a non-threatening, loving manner.

Finally, there is particularly the anti-hierarchical feelings and rigorous practice of the French Jansenist in the 18th and 19th century. This group thought of themselves as orthodox Catholics. They stressed the basics of the faith: regular confession, frequent prayer, deep respect for the Blessed Sacrament, the importance of grace, the acknowledgment of Original sin as well as personal sinfulness, etc. Although the Jansenists fell out with the Jesuits and were condemned as a heretics, their multi century influence on French religious thinking must have helped to shape the attitudes of many French nuns. .............(prepared by Hugh Murray on 11/20/2010)

Hindsight is 20/20; But to Really Benefit from the Truths Revealed, They Must be Stated and Studied - (Introductory note: This essay is one among thousands that have been or will be written to explain and explore these issues.)

America has entered a long ecomonic "slow down". This period will be marked by several realities:

+ America will be reducing its debt public and private, first private debt then public. The country's financiers will insist.

+ Americans will be reducing their standards of living - smaller homes, fewer purchases of new things, less travel, more service type jobs will be done by individuals rather than hired done (e.g. yard service, haircuts, restaurant meals, oil changes, etc.), more things will be fixed rather than thrown away and replaced, etc.

+ The country will be reducing its foreign commitments, military and diplomatic.

+ The service sectors, particularly those manned by non-credentialed people, will decline; the domestic manufacturing sector will grow, particularly labor intensive manufacture. This will happen because the US can’t stand chronic trade deficits anymore and this country has large numbers of lower skilled workers that will need manufacturing jobs, as service sectors and construction decline.

+ Americans will start manufacturing more of the items sold in American stores

+ America has constructed too many buildings commercial and residential; in the future there will be far fewer jobs in private construction; the only area likely to see increased construction employment are water, sewer, and secondary bridge projects as this infrastructure, which is in very bad shape, is repaired.

+ Both government salaries and overall government employment will decline; the ability of government to raise taxes will be constrained.

+ Payments under government programs (e.g. social security, food stamps, unemployment compensation, medicaid, medicare, etc. ) must also decline.

+ People will begin attending church more regularly; simple social entertainments will regain popularity (e.g. pot luck dinners, cards with friends, etc.); television and Internet use should slow their rapid increase as people stress local and at home events with friends, attendance at major professional events will give way to interest in local high school and college teams.

+ Couples will have more children and a lower percentage will be born "out" of wedlock; this will happen as young adults re-discover the simple pleasure of a wholesome family life .

+ No fault divorce, particularly when children under the age of 18 are in the home, will be outlawed. Likewise abortions will be much harder to obtain. The proper having and rearing of children will become a national priority.

+ People may try to migrate away from big cities with their concentrations of anti-social behavior, excessive anonymity accompanied by excessive rudeness, difficult commutes, and just plan congestion

+ There should be demands for more local control of government tax and spending priorities. Although federal taxes will remain high; Federal programs will disappear or shrink in size.

+ Support for the handicapped and unemployed will move toward private charity and away from government programs; there will be more "strings attached" to such help,

+ The power of unions, particularly government unions, and government regulators, like OSHA and the EPA, will be curtailed.

+ The US will have an oscillating economy, at times looking over the brink at deflation and huge unemployment, at times facing improved employment with substantial inflation.

+ In health care, a pull back in gov't spending on medicare, will cause more older people to opt for early hospice admission rather than risk total improvishment going through America's very painful and costly ritual of dying.

+ Beyond basic education (K to 4), education will again be divided into its historic categories: life long, vocational, on the job, and college prep. There will be less emphasis on the last and more on the other three. The country will not be rich enough to pretend that all students, or even a large majority, should be in college prep. However, all schools will be affected by a public demand that all schools teach real morals, not just watered down "values".

All in all, the country will gradually begin recovering from its many excesses of debt, foreign exchange imbalances in trade, excess foreign military involvements, undo dependence upon others for the daily needs of life, etc. The self reliant red states will become "redder'; the blue states, with their past acceptance of big government and social experimentation, will become more purple.

The question that will be on everyone’s lips will be "How did America drop so far, so fast?" Probably the biggest mistakes were: nearly everyone's excess interest in satisfying self, to few children born "in" wedlock, to many born "out" of wedlock, to little attention to lasting values and religion, to much divorce, to much family mobility, to little interest in keeping the extended family together, expecting to much from government, to much interest in distractions and status symbols (e.g. big homes, fancy cars, foreign trips, electronic gadgets, etc. ), to many abortions, to many business leaders willing to move jobs and even whole factories offshore, to many shortsighted Washington policy makers fixated on keeping low priced goods on the store shelves without considering the many lost American jobs, to many financial strategists of great intellect and poorly formed consciences getting into decision making positions where they generated unseemly profits while doing did great damage to the US economy, etc.

The current financial crisis and economic slow down will probably, in the end, prove to be a "God sent" wake up call that will lead to a great American renewal later this century. However, the next 10 to 20 years could be difficult. They will try everyone's patience (and bank accounts) as adjustments are made. ............... (prepared by Hugh Murray on 11/26/2010)


The Brokerage Industry Adopts the Pervasive "Excessive Fee" Model of the Commercial Banking Industry - The brokerage industry, also known as the investment banking industry, has been coming under the sway of the commercial banking industry. This has been happening ever since the Glass Stigal wall of separation between commercial and investment banking was dismantled in the 1990's.

Today most big brokerage operations are owned by commercial banks (e.g. Bank of America owns Merrill Lynch, Regions Bank owns Morgan Keegan, etc.). Even small brokerages are effected by the large bank mentality because the are forced to clear their trades through large clearing entities many owned by large commercial banks (e.g. Pershing is owned by Bank of New York/ Mellon, First Clearing is owned by Wells Fargo, RBC Clearing is owned by the Royal Bank of Canada, etc.).

So what about this large bank attraction to fees? Bankers have traditionally made their money on the spread between the interest paid on deposits and the interest earned on loans. This was a very good business until large savers began to use money market funds instead of banks to earn interest on their cash. On the lending side "non banks" began to make consumer loans and mortgage loans. This left banks with higher cost small depositors and a rather limited set of interest rate sensitive borrowers some with high risk profiles (e.g. commercial real estate developers). The banks started to augment their usual "interest rate spread" earnings with charges and fees to borrowers and depositors. In time these fees grew to become a third or even a half of the bank's profits.

With this background in mind it is easy to see how the fee mentality migrated from the commercial banking side to the investment banking side after the Glass Stigal wall fell. Of course, the big players are able to negotiate their way around the fees, but the millions of small brokerage accounts were suddenly inundated with a dozen different fees: certificate issuance fee (if you want to hold your own certificates), inactive account fees if you don't trade enough, postage and handling fees on each trade, IRA set up fees, IRA annual account maintainence fees, Retirement Plan Deposit fee, legal item fees for re-registering securities following a death fee, transfer an account "in" fee, transfer an account "out" fee, fee to access account info via the Internet, liquidate a mutual fund fee (even when the agreement at time of purchase was for a purchase only fee), safekeeping fee (if a securities is kept in the firm's vault but registered in the client's name rather than in the brokerage firm's name), LOA (Letter of Authorization) processing fee, foreign stock record keeping fee, "less than min" fee charged smaller accounts, foreign stock annual report and proxy material forwarding fee, etc. In many cases these services do involve some out of pocket cost, but it is not unusual for a "10 fold" mark up factor to be applied in setting the actual fee charged customers.

These fees were all over and above the normal commissions on transactions or the percentage charge on account values common with fee based accounts.

It is very apparent that a small investor who wants to work with a traditional broker (rather than a computer at an "on line" discount firm), could find his $10,000 IRA account hit with $300 or $400 per year in fees, particularly if he does anything at all unusual or even if he just wants to "stand pat" and do nothing.

It is important that investors, particularly small investors, be encourage to work with brokers because these brokers have a wealth of information and the ability to put things in perspective for the average investor in his unique situation. However, from the forgoing it is easy to see how these fees are working against any meaningful collaboration. ..................(prepared by Hugh Murray on 11/26/2010)


Federal Courts Put “Don’t Ask, Don’t Tell” in Their Cross-Hairs - The Federal Courts have started to issue decisions saying the Defense Dept must get rid of the "don't ask don't tell" policy on homosexuals in the military.

The Pentagon in response has been pleading with Congress to revise the law governing homosexuals in the military to make it compatible with the court rulings. The military's leadership does not want to be forced to allow open homosexuals into the military without having an extended period of training and indoctrination to get the heterosexuals sensitized to the changed living and working arrangements that will result.

The Pentagon's concern is real. The courts have been, and continue to be, out of control particularly in terms of social experimentation - legalized abortion, same sex marriage, etc. There is no telling what some semi-deranged judge might order with no regard for what military leaders are doing to maintain "group cohesion" and "good order" in their units.

However, the much bigger problem is the basic formulation that the Pentagon is proposing to Congress. Rather than asking the Congress to pass legislation limiting the power of the courts to hear cases involving homosexuals in the military, the Pentagon comes asking Congress to accept the courts' view of this issue and simply implement through legislation the courts' desires.

The Constitution in Article One makes it clear that the Congress (not the courts) have the ultimate say in deciding what is good for this country. Somehow over the last two centuries, the courts, not the Congress, have taken on the job of deciding what is best for this country, and the Pentagon has accepted, without questioning, this fiction.

The country needs to either: 1) abide by the Constitution, or 2) amend the constitution moving the clause that currently gives the final say to Congress out of Article One, and put it in Article Three where the powers of the judicial branch are set forth............. (prepared by Hugh Murray on 12/04/2010)


Advantages and Disadvantages of Small vs Large Enterprises - The evolving situation in the highly regulated brokerage industry is very instructive on the impact of aggressive, intrusive, standardized, detail regulation on firms of various sizes.

To better understand what follows a quick review of the advantages and disadvantages that large and small firms generally enjoy in some critical areas would be useful:

1) With regard to the cost and availability of capital - Large firms are generally agreed to enjoy an advantage here. They access capital at lower cost and with greater ease. The reason for this are many but basically , assuming all other factors credit risk, operating history, etc. are equal, the large firm will benefit from the fact that the cost of doing a public offering or setting up a bank line of credit for a large entity is far less per dollar obtained than for a small firm.

2) With regard to in-house specialized services, such as IT, legal, accounting, benefits experts, etc., the large firm has a noticeable advantage. Because of the large amount of these kinds of services which the large firm needs it can hire in-house, fully qualified experts to perform these tasks. The small firm has to hire such service on an as needed basis. This necessarily means more involvement by the small firm's top management selecting the best outside provider and then bringing the outside specialists up to speed on the particulars of the current problem causing concern. The dollar costs and delays involved in getting specialists on the problem at the small firm are significant.

3) On responsiveness to client needs, the small firm is usually in the better position. Large firms tend to like to standardize offerings and even though large firms can be price competitive, if they wish, they generally lose out on other measures of customer service.

4) With regard to government regulation, large firms tend to be better situated. They have the extra specialized personal to serve on advisory commissions and therefore they have the inside track to shape any new or changed regulations. The small firms are always in a reactive mode trying at the last minute to head off costly or damaging regulations, but mostly they are not very successful because the large firms have gotten everything in motion before the small firms get notice of impending regulatory nightmares.

Turning to the brokerage industry, these factors are present with industry specific twists:

1) Large firms, with the exception of Lehman Bros, got capital through TRAP, or government arranged mergers with TRAP money added in (as in the case of Merrill and Bank of America). Small firms were left trying to raise equity capital (generally the only kind they are allowed to use) from friends and relatives who were shocked by the sudden decline in stocks in late '08 and early '09. These prospective investors were not very receptive when asked by the owners of small broker-dealers owners to help out in difficult times.

2) With regard to specialized expertise, the large firms recently demonstrated their abilities as they created and sold across the globe "high quality" CMOs . Small firms could never have created the destructive avalanche of worthless paper that America's large brokerage firms managed to create and market with their army of specialists. Of course, Maddoff and Stanford were not from large firms, they came from mid-sized firms. But in both these cases whistle blowers had sounded the alarm, but the folks at the SEC lacked (a) the guts to act or (b) enough knowledge about the products or strategies involved to see the problems.

3) With regard to customer service, small B/Ds offer flexibility, individualized product offerings, individualized customer service, a slower more humanized approach with clients,a willingness to service smaller investors, etc. . Large firms offer excessive fees, minimum account sizes, "cookie cutter" or “one size fits all” product offerings mostly involving an aggressive management fees, excessive push for profits with pressure constantly being put on salesmen to hit "production levels", etc

4) Regarding regulation -. Currently the large firms have captured the single SRO (FINRA) and are using their position to influence FINRA to destroy the bottom half of the B/D industry through excessive regulation and strict enforcement in this time of very high stress on the economy. This push has eliminated 15% of the small firms already. More important it forces millions of client accounts to move toward the large firms. In other words to move toward the large firms' high fee product offerings. Of course, this movement of billions to the large firms will bring financial health to these firms, but at what cost to choice for the investing public? In the brokerage industry there is a need to return to the two self regulatory organization (SRO) model - one for small firms and another for larger firms. These two SROs existed and operated successfully until consolidation occurred a few years ago.

Conclusion, large firms by their very nature enjoy lower cost access to both capital and needed specialists (IT, personal, legal, etc) than small firms, but small firm enjoy an advantage delivering tailored product and service offerings to customers. So long as the government leaves the regulatory playing field level, the two types of entities can both survive. In times of high stress the government must make special arrangements to protect all participants from extinction, perhaps (a) by providing TARP money to certain firms or (b) by suspending the implementation of all new rules for a few years for certain firms or (c) by reducing the number of disciplinary notices issued for violations that did not injure clients but were simply record keeping mess ups for certain firms, etc ............................ (prepared by Hugh Murray on 12/21/2010)


Until a Christian/Islamic Westphalia Comes - Co-habitation Won’t Work - In 1648, the thirty years war between Protestant and Catholic forces came to an end with the Peace of Westphalia. This peace, which was brought about through the adoption of several treaties, promoted over time, several key understandings: 1) each individual got to decide for himself what religion he wanted to embrace, but 2) the local Lord got to say that his religion was the official state religion for his domain. 3) There was freedom for all citizens to discuss religion, and 4) citizens could elect to change religions if they chose.

There were incidents following 1648 where these guidelines were not followed in certain locales. However, the movement over the entire Christian world has been toward upholding these principles. This push toward tolerance has been steady, with both religious and civil leaders prepared to openly criticize and/or condemn their followers who break from these guidelines.

In the Islamic world, there is no free movement of people to and from various religions and there is no free discussion of various religions . Of course, anyone can opt into Islam, but if a Muslim decides to opt out of Islam (or if he speaks favorably of another religion) he can be punished - not by being ostracized, not by being fined, not by being held up to public ridicule ... no he is punished by being killed. Not only can he be killed, the decision to kill him can be made by any Muslim, no matter how mentally confused.

So one sees the basic problem with co-habitation, Christians with Muslims, in the same geographic region. Islam doesn’t have leaders who can authoritatively condemn individual Muslim for the violent acts arguably authorized by the Koran. Each Muslim is allowed to decided for himself what the Koran calls him to do. This means few Muslims will ever risk learning about Christianity much less converting to Christianity for fear of being killed by some “religious nut case”.

So when will a Christian/Islamic Westphalia be worked out? The fact is it can’t be worked out so long as the Islamic world lacks a leadership class who can sign the agreement and enforce the idea of religious freedom, along with freedom of speech about religion, amongst the Islamic faithful. No such leadership class, particularly in the majority Sunni community, is emerging; so there is no prospect that any understanding will emerge regarding these issues.

Several European countries have growing Islamic populations. Eventually such countries as France, Germany, Sweden, Italy, etc will have to decided - do we march slowly, but surly, into the Islamic orbit eventually becoming majority Islamic? Or do we do what the Spanish did 500 years ago and demand that Muslim either convert or leave? .............(prepared by Hugh Murray on 12/22/2010)









This page hopes to bring a common sense, old fashioned view to today's news. The comments displayed on this page were prepared by Hugh V. Murray, who can be reached at hvm@aol.com