Ignorance About Markets

There is a  general ignorance among many members of Congress and the public, including the media, about financial market operations.

When a financial company on Wall Street creates a form of security and places it up for sale, it is technically a market-maker, not an adviser and, therefore, has no fiduciary responsibility. Neither is it a broker, unless it sells the security.

Up to fairly recent SEC admonitions, brokers have had no fiduciary responsibility. They do have to sell what is deemed ”suitable” for the customer. Therefore, a broker cannot sell risky securities, for example, to widows and orphans without their express knowledge. They can sell suitable risks to highly sophisticated investors.

Market-makers deal with seasoned institutions who know risks.  Market makers frequently sell short, in the event markets fall, often with both selling and buying positions at the same time, as a hedge.

Advisers, on the other hand, generally give advice and suggestions only. They are not market-makers, nor are they brokers.

Something for politicians to learn, while they point fingers at “double-dealing.”(See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)