POOR RICHARDS REPORT
Chapter 15
Ringing the Bell or Trumpets are Blowing
Or How to Survive to Coming Panic
The Federal Reserve Act of 1913 is probably the most important law of the 21st century. We must follow the guidelines that were followed by the members of Congress who voted for this to be law.
The reforms that I suggest will send the market into a temporary tailspin, but if they are followed completely only the speculators will crash.
For openers, the banks who have been hording all the QE distributions must now share them with their depositors and give a greater portion to the younger depositors because they need it the most. They will also spend their portion, which will kick start the economy.
Next, the Congress should form a standing committee of 16 members to review all the reforms to our financial system. The members should be equally divided from each party and have the highest respect among their peers. Seniority or power should not be considered. Ethics should be of the highest order.
Finally they should have a unanimous vote before it comes before the entire house. This was a stipulation when the committees met for the Federal Reserve Act of 1913. It took them 6 months. The Congress voted December 22, 1913: 298 yeas and 60 no’s and 76 not voting. On December 23, 1913 in the morning vote, there were 43 yeas and 25 no’s with 27 no votes. (Back then there were only 95 senators).
That afternoon President Woodrow Wilson signed the act into law.
1. The Federal Reserve shall raise All Margin rates to 100% for a period of 6 months to a year.
2. The Security Exchange Commission (SEC) shall ban all corporate share buybacks. (All this does is increasing the earnings per share and enables the officers to receive a higher price for their options).
Instead, the monies should be distributed to the shareholders so all can share the wealth – not a privileged few.
This should create new buyers that should offset the sellers.
3. “Banks” should start returning the QE funds they have been hording over the past few years to their depositors. This should be done with the younger ones with families receiving a greater portion. Then staggered depending upon one’s earning power. The higher the earning power the less money received. This should increase the velocity or turnover of money. Some corporations will fail while others will prosper due to some changes in buying patterns.
4. Ban High Frequency Trades (HFT’s) entirely. They break all the rules for fair play and only benefit the owners. The public be damned; damn them.
5. Derivative trades are set up for fees and is a form of gambling. Most derivative trades are hard to follow and most financial disappoints (a nice word) evolve some forms of derivatives. The best way out of this mess is to just let them mature.
6. Trash the Dodd- Frank ACT and make the new one simple to understand.
7. Trash the Investment Company Act of 1940. It covers mutual funds. Exchange Traded Funds (ETF’s) have quietly been replacing mutual funds. With computers and their size most of these laws are anachronisms.
8. Clean up the ads. Most ads today give the hint of casino gambling. Insert a clause for risk.
9. Go back to the fraction system for stocks. This will allow the market maker to support his market during normal times and also kill off HFT’s and stop firms offering the first “free” trades.
10. Reinstate the Short Sell Rule. This is very important because it will stop gambling and stop computer hacking in the market place.
To do a legitimate Short sale one must first get permission from the back office of the firm one is doing business with. (They have the security to deliver to a buyer when you sell short). Then one must wait for an uptick in the price of the stock before the sale can take place. The order is also marked “Short Sale”.
Today I believe short sales are made willy nilly and no uptick is involved. I also believe that after a sale is done they look for stock to deliver.
These reforms that I have listed so far will cause all hell to break loose among the heels of the business. They will be the losers while the public will gain confidence in the system and regain some of their tax dollars.
Investors will be able to make intelligent decisions based upon facts and knowledge instead of charts and soothsayers and false prophets.
Poor Richards Report Chapter 15
