INVESTORSERVE

FINRA Is A Farce

Its a good thing that FINRA or the Financial Industry Regulatory Authority was established in July 1997 through the sage "consolidation of NASD and the member regulation, enforcement and arbitration functions of the NYSE."  

FINRA's establishment more than 12 years ago thankfully protected legions of equity investors who otherwise would have been severely crushed in the market bubbles of the 90s and 00s.  

How did FINRA achieve this?  Simple:  FINRA believed "investor protection begins with education." 

Let's, for example, recall how FINRA took the strong educational stand during the Dot Com run-up between '94-'00? When it said: "Hey investors, these Dot Com companies that the major investment banks have underwritten are entirely profitless, they are taking companies public in a manner entirely unprecedented since the years prior to The Great Depression, it's all a bubble, the Federal Reserve is loosening interest rates under the auspices of a certain horny President and the I-Banks are going Hog Wild!..."  

And let's recall how, as a result of it's criticism of Dotcom public issues,  investors sold off their shares of Pets.com and EToys.com and a hundred others of similar issues until all said companies were delisted from the NASDAQ in 1998.  

Let's also recall the early part of this first decade of the 2000s how FINRA seemingly sat astrode a "great white horse", a veritable Lone Ranger versus the deluge of I-Bank plays in financial instruments built on packages of "liar loans."  

Thankfully FINRA educated us all again this decade, telling us that we the investors of the U.S. shouldn't invest in financial instruments built on loans floated to people who couldn't even verify their own alleged income...

And finally let's recall how FINRA protected us year after year since 1997 against the legions of ultra-sophisticated marauders -- rogue stock brokers -- plaguing investors across the land!

If you haven't figured it out yet, I'm "putting you on" about FINRA in a number of ways:

• In reality, FINRA wasn't started in July 1997.  It was started in July 2007.
• Has FINRA has ever educated anybody on anything?  Oh of course; its "education" of investors started two years ago -- right at the end of a nearly 15 year long string of market bubbles that gutted 401Ks across the country!  Ok but maybe FINRA's forebear, the NASD did a decent job during that 15 year stretch?  Give me a break!
• But here's the best part about FINRA, at least if you work in investment banking: Just like the NASD of old, FINRA indirectly educates the general public that it is effectively a few rogue stock brokers (not bankers) who are the bad guys in the financial community. Right, stock brokers -- ultra-sophisticated guys and gals who are allowed to sell you securities if they have at least a high school education, passed a few relatively lightweight exams (70% on the Series 7 exam and a couple of others), and talked the branch manager of a local brokerage office in to recruiting them from the finance department at the KIA dealership up the road!   

In conclusion, I say FINRA is at best a PR "front" sheltering the U.S. investment banking community.  Call me bi-polar for saying so, especially since I so recently gave Goldman Sachs a pass in the post, "Bucking the Norm Puts you Between a Rock And a Hard-Place."

But the conceptual idiocy of FINRA in light of the present day financial climate is just too obnoxious to let slide-by investorserve.com unnoticed.

   

Money In The New Business Of Education

Ok, so big news is kids are graduating from Harvard and they are not taking jobs in NYC at Morgan Stanley or Goldman Sachs.  No, they are taking teaching jobs of all things.

Are these young people insane?  Have they lost their minds?  They've decided to bypass a life where they can make a fortune and retire at age 37 in favor of a life in which they spend their best years baby-sitting a bunch of Spliff-smoking teens?

"Why their sudden aversion to money?"  you might ask. 

I say these young people don't have any aversion to money, that's for sure.  They are just a bit ahead of the curve when it comes to recognizing where the money's going to be in the future.  

Yeah, believe it or not, you should look at Education. 

Here's why:

1) Unlike the 90s when the Internet "concrete" was still wet and residential connection speeds were generally dial-up slow, today in 2009, fast broadband residential connections are ubiquitous in most mid to large sized urban locales. This very high speed broadband means one can watch high quality video on-line.  It also means one can watch high quality video of live, remote academic lectures on-line.  And one can also utilize high-quality video conferencing to engage in academic question/answer sessions on-line in said lectures.  So effectively, the technology is in place to allow a student to attend graduate school or professional school or practically any type of academic course of study without ever leaving his/her residence. 

2) Traditional go-to-Prep-School, go to Parochial-School, Go-to-Private-College.  All of this has become extremely expensive in the last 20 years.  The cost of post secondary education has, in fact, far out-paced cost of living adjustments.  Frankly, I believe the market is going to be looking for alternatives to paying $50,000 for a year worth half-that at a private college.   

3) On-line education is (theoretically) easily profitable without a lot of monumental technological breakthroughs.  If students want to take a course of study on-line, they pay in advance -- and I'm talking thousands of dollars per credit hour, not "Ohh, I hope these students will be willing to pay $12.95 a month for our service?!"  Also, the overhead involved with the service is surprisingly low; compensate the teachers and professors, make sure you have facilities to use or a bricks & mortar school or university to align with, make sure you have good camera gear and a crew who can do the shoot and start teaching once all your new students have the syllabus. Repeat!

Ok, so maybe there is some money in this new business of education.  Maybe the Harvard youths are in early on something sizable.  

In the next post I will talk about how these education companies will likely take on investment and expand and how they may never see a reason to go-public.