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Wednesday, March 20, 2013

Is Federal Government The Enemy of Investors?

Provocative headline, prompted by breaking news that federal regulators secretly downgraded American Too Big To Fail, Too Big To Jail uberbank JP Morgan Chase last summer, but did not tell the investing public.

That's nice.  Not to defend anyone committing, accused or suspected of engaging in fraud, insider trading or other market-rigging crimes, but secrets kept by the government have the same fraudulent, outcome-distorting effect.  And these secrets also produce unjust winners and losers.

If a private citizen makes an analogous secret deal and doesn't disclose it, and if it's later ruled to be "material," that citizen is likely to face civil lawsuits from wronged investors, or even criminal prosecution for securities fraud.  Something known as Rule 10b-5.

Is this just more evidence that the federal government is picking winners and losers in the investing arena as well?  

Is this just another disclosure that undermines what remains of the investing public's confidence in either the markets or its federal government?

How the heck does one invest in this environment? These are the questions one must ask, when regulatory uncertainty seems to be the government's modus operandi and one can assume only hypocrisy, not fairness, from the government. Such uncertainty can only undermine future economic growth and prompt some economic actors -- business owners, investors, retirees -- to withdraw from the economy. This is a foreseeable and entirely prudent course of action, when any other activity carries with it a risk of regulation, prosecution or confiscation. For the rest of us who aren't yet willing or able to shut down and retire, the coming years may be daunting indeed.

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