What I mean by that is that as the buyer of a product, you usually would go out and read the reviews, kick the tires, etcetera. At this time, many buyers of investments didn't do that at all.
Our sales guys didn't understand the product for sure, but if they had a customer who asked the right question they would have arranged a conference call with me or a colleague, no issue. That happened like, one time.
I think the concern that my firm had at this time was principally related to the likelihood that emails like this would hit the public domain at some point.
Edit: shameless plug. My stealth mode thing should change this a little bit (for certain investors).
Calling consumers 'complicit' for failing to understand a company's offerings significantly better than their own salespeople is at the very least insulting.
Again, I agree this is broken. My only point is that saying things are "fraud" is harder than I think you expect.
The problem is that saying "I want X% return with Y risk, show me suitable investments" introduces two problems. The first is that risk is not easily quantifiable[1] and also that there are likely many things that are plausibly suitable for that requirement.
If you are dealing with a salesperson, they are required only to present stuff that has a reasonable likelihood of meeting your goals.
If they're working with someone who is a fiduciary, that fiduciary is required to do the extra analysis, but many people are not lucky enough to work with folks who are held to that higher standard.
In my view, every consumer when transacting with every salesperson should use their own judgment to make sure that the products they are being sold are sensible and suitable for them.
Failing to do that -- to just walk into a store and buy what the salesperson (not your personal shopper or your sister or someone who actually cares) says is best -- is just a bad idea.
I hope that adds some clarity as to where I'm coming from.
[1]Quanta exist, but are not comprehensively descriptive. Any metric will not comprehensively describe risk, especially because there are behavioral factors (your own changing attitude towards risk over time) that need to be incorporated into a thoughtful assessment.
I'm not sure it's really fair to say that consumers were equally complicit, though - the people being paid to understand this stuff probably had more intent.
I've got to say that the problem for me comes down to one of competence versus theivery. I don't think that the guys I worked with were outright thieves. I do think they were not especially competent in recommending investments.
These guys are salesmen. They could be selling you printers, but they're selling investments instead. They really are not paid to understand the stuff...they are paid to move product.
When I say that the consumers are equally complicit, what I really mean is that in many cases they just listened to a sales pitch and accepted it as truth.
Not to say that there weren't defrauded consumers or evil salesmen. I'm sure there are individual cases of fraud. I just think it's a really complex system with overlapping spheres of incompetence that defies easy characterization as "fraud" or "not fraud."
We can strenuously agree it's broken though.
If you tell me something that you know or should know to be false, I act on what you told me, and you benefit from my action, then by definition I have been defrauded.
Salesman: "By a MagicSuperAwesomeLotto ticket! There's no chance to win 50 million if you don't buy one. It's definitely a very risky investment. But it's an extremely small loss and the payout could make you generationally rich. We sell them in increments of $1, $5, and $50 if you want 50x chance to win, and we accept wire transfers."
Client: "So do I have to match all the picks in a row to get a payout?"
Salesman: "I'm not sure. It's a new product. We'll have to check."
Client: "Oh don't bother. I'll take $5,000 of them."
Overheard... "What a moron."
Plugging a stealth mode startup? C'mon man spill it, you know you want to, and now we're all curious.
It's new. A lot of what you get from an is along the lines of "Oh, you want this money in seven years huh? You should probably just buy a bunch of bonds." That's crazy. A .15% change in interest rates will wipe out a year's worth of interest on the long bond.
My thing is an invented modification of a CDO/CLO that keeps your global risk sensible while making sure that your short term objectives are preferentially met. It also makes really customized risks available at almost no cost.
It's cool. PM me for details.
A target date fund approaches your goals by varying the percentage of the portfolio invested in bonds and cash.
My approach doesn't rely on those fixed income instruments to mitigate risk, so isn't exposed to rising interest rates as directly.
In short, it's a new kind of target date fund (in a sense) that is smarter in the present environment.
Customers in aggregate do not act as a collective unit. If banks, mortgage brokers, and others are lying, encouraging lying, falsifying, and otherwise systematically subverting the system, the fault lies squarely with them.
Interesting business ethics you've got there. Remind me never to to business (or pleasure) with you.
That reminds me of the Homer Simpson quote: "Marge, it takes two to lie. One to lie and one to listen."
All consumers are all the "buyers" of junk mortgages in the end, but there's no way that we knew how junk they were when the executives were willfully defrauding us.