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Are IOUs securities?

That’s the question lots of folks are asking as they try to figure out how to potentially make money from the billions of dollars in IOUs being sent out by California this month.

If the Securities and Exchange Commission says yes, then two other regulators will be pulled in: the Municipal Securities Rulemaking Board, or MSRB, which would monitor the situation to make sure everyone is playing by the rules, and the Financial Industry Regulatory Authority, or FINRA, which would knock heads if there’s any wrongdoing.

It would also mean that only certified financial professionals could act as the intermediary between buyers and sellers.

If the budget crisis drags on, I imagine the professionals will be clamoring for the SEC to say yes to securities.

Stanford gets Madoffed

It appears the punishing 150-year sentence meted out by a federal judge to Ponzi king Bernie Madoff is already having legal reprecussions.

A day after Madoff was sentenced to spend the rest of his life and then some in a federal prison, another federal judge in Texas sided with prosecutors in ordering R. Allen Stanford to remain in jail pending a trial on his own Ponzi-related charges. Now there’s no definitive connection between the Madoff sentencing and the ruling in the Stanford case, but it’s hard not to see some cause-and-effect.

Your new consumer watchdog

The Obama administration just released draft legislation for its newly proposed Consumer Financial Protection Agency. The 152-bill would create a five-member commission with the power to make rules and issue subpoenas. 

The new agency’s primary mandate will be to push for greater fairness by mortgage lenders and credit card issuers. That’s important stuff. But sadly, the agency’s mandate appears limited. There’s no discussion in the agency’s enabling legislation that would specifically permit it to look at things like life settlements, structured settlements or structured notes.

How to restore trust in money market funds

If the idea of having precious cash tied up brings back dark memories of the sudden clamping down of billions of dollars of funds during the credit crisis, you’re not alone.

By some counts, the auction-rate securities mess has left hundreds of billions of dollars trapped in a short-term market that many had been told was as good as cash — just with better returns. That’s enough to keep any investor wary.

Scoring investment risk

The Bank for International Settlements is thinking the right way in calling for a global standard of ranking financial instruments based on their risk and suitability for different kinds of investors.

The BIS Annual Report argues that financial instruments, markets and institutions all require reform if a truly robust system is to emerge. For instruments, it means a mechanism that rates their safety, limits their availability and provides warnings about their suitability and risks.

Reforming money markets – it’s about time

The New York Times has a nice piece on SEC musings on money market reform given the run on this $3.7 trillion market after Lehman Brothers’ spectacular failure. It’s about time considering how vulnerable these funds became to market excesses during the boom. But it doesn’t look like the proposed reforms go far enough considering that most people park their money there so they can get it out quickly if needed.

You’ll remember that that Reserve Primary fund, was slammed with withdrawals in September, causing it to “break the buck” when the value of a share fell below $1 – a huge no-no in the money market world.

Short selling and the SEC

The subject of short selling can always be counted on to generate a lot of heat. And a proposed Securities and Exchange Commission rule that would put limits on the ability to short a stock–especially in a severe market downturn–is no different.

In all, some 3,700 people submitted comments to the SEC, which officially stopped taking public input on the proposal on June 19. (The comments, however, are still coming in).

New US consumer body needs broad mandate

Securities regulators are famous for fighting the last war and not paying enough attention to the newest financial products that Wall Street banks are pushing.

The Securities and Exchange Commission, for instance, was still doling out fines for mutual fund market timing — a 2003 offense — up until last year. Yet the regulator played ostrich as the banks kicked it into overdrive in churning out risky mortgage-backed securities.

Catch of the day

R. Allen Stanford’s indictment for his role in masterminding the second-largest Ponzi scheme ever was never in doubt, after the Securities and Exchange Commission charged him with civil fraud in February. But that’s not stopping the SEC and federal prosecutors from holding a Texas-sized shindig to trumpet their big get.

The authorities are staging a big press conference at Department of Justice headquarters to announce the filing of crimnal charges against the Texas financier, who was arrested last night in Virginia at the home of his girlfriend’s brother.

Obama loves hedge funds


Matthew GoldsteinThe big winner in the Obama administration’s financial regulatory reform package is the beaten-up hedge fund industry.

Hedge funds get a particularly “light touch” when it comes to government oversight in the Obama plan. Essentially, the administration is calling for a reinstatment of a Securities and Exchange Commisison rules that requires managers to register with the agency as investment advisors.  The rule was overturned by the federal courts, but many large hedge funds remained registered with the SEC–even though they weren’t required to do so.