POOR RICHARDS REPORT
Chapter 11
Pay the Price Now!
When the markets start to crumble that is when one finds out who has done bad deeds. That is when people become hurt financially.
The problem today, in 2014, is that we have been playing by new rules. Interest rates are low and we have been shut out of many other places, which leaves investments; Stocks and bonds.
So the banks, wall street, and other financial organizations have new rules aided by the computers and programs that we can not afford. It is called “We win – you loose!”
Janet Yellen, the current chair of the Federal Reserve is the only person who can change the game.
By raising Margin rates, she cuts off the flow of excess dollars floating around the world for ill begotten means. Forcing banks to increase their reserves means that the most aggressive banks will have to call in some loans. The easiest calls are made on those who purchased stocks. They force sell orders, but those are the most liquid calls.
When margin rates are raised, one can keep their positions intact, and make same day substitutions at the old rate. If one sells and waits one day, then they have to pay the new rate.
Now if one gets a margin call (this means one has fallen below the limits and either has to substitute or add stock or cash) the golden rule in the street is that one should never meet a margin call with cash. The stock is telling you something – sell!
The SEC can pick up the ball by Janet Yellen and do away with the decimal system for stocks and bonds. Fractions create a genuine spread between the bid and ask prices.
This will cut off speculative trading at the knees. One can buy 10,000 shares of a 10 cent stock and sell it at 12 cents and make a bundle if one is lucky. By making a spread between the bid and ask the speculative trader has some positive news to support his position.
The market maker is taking a risk as did the specialist on the floor of the stock exchanges by taking positions in a the security in order to maintain a fair and orderly market. The “spread” between the bid and ask prices is how he makes his money. Those monies also pay for his positions that he has overnight. He tries to provide support to the market place
The decimal system has is for casino’s and they operate with a 90% or more “take.” There is no market maker or support.
Then Congress can pick up the ball and renew the Usury Law. Maximum interest rate is 8% for individuals. Debt instruments for corporations and municipalities and countries will depend upon their credit worthiness. The higher interest rate; the greater risk.
Then the Congress should have a moratorium on debt for two years. If one can pay down the principal during those two years, then the interest rate is zero(0%)! Is it not much better to receive your principal back then nothing at all? Collage loans would be a great example, and it would also help reduce the government debt.
The banks and financial institutions will scream bloody murder, but they are the ones who got us into this mess.
The small corporations of the world are the ones who raised our standards of living and in the US the Securities Exchange Commission (SEC) was created to protect the individual investor from over zealous bureaucrats.
The major problem we all face today is how do we tame the computer?