Financial industry lawsuits reveal its true colours

For all those relying on the much marketed “expertise” of their investment brokers/advisers, here is an illuminating story: the Financial Industry Regulatory Authority is considering restricting the ability of brokers to sell a product if they cannot explain its risks to potential investors. Bet you thought understanding a product before advisers recommended it to clients was already a given…well apparently not, see: In soured investments, brokers emerge as culprits and victims.

“For years, regulators have typically pursued brokerage firms over the failure of investments they sold rather than going after individual stockbrokers, because the target was larger and the possibility of reaching a financial settlement was greater.

Now, regulators are shifting their focus in their fight against fraud to encompass brokers. The shift comes even as some brokers are casting themselves as victims, saying they were duped by the same complex products that they once happily sold to customers.

Brokerage firms project a public face of their employees as attentive, diligent and proficient. In television and Internet marketing, they highlight the expertise and sound guidance of their advisers. In contrast to that depiction, brokers are now saying that some products were so complicated that they did not have the knowledge to sell them. Some have sought to have complaints about the products they sold expunged, and others have filed claims against their firms.”

In a world focused on sales and upfront payouts, no one wants to be held accountable for outcomes.

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Full circle: junk loan demand tops ’08 record

Ho hum…its that part of the cycle where people have lost their minds again. See: Junk loans top ’08 record as safeguards stripped

The amount of loans to the riskiest U.S. companies ballooned to a record this year, propelled by unprecedented demand for floating-rate debt that offers protection from rising interest rates.

The market for junk-rated loans increased to $683 billion, exceeding the 2008 peak of $596 billion, according to Standard & Poor’s Capital IQ Leveraged Commentary and Data. The $130 billion surge this year was fueled by borrowings that don’t include typical lender protections such as limits on leverage.

Loans, which suffered the biggest losses in the fixed-income market during the financial crisis, staged a comeback as investors funneled a record $64.4 billion into funds that buy the debt in anticipation the Federal Reserve would start unwinding its bond buying that’s suppressed borrowing costs. The demand has enabled companies to take on more debt for shareholder rewards, prompting regulators to warn that the excesses which contributed to the credit crisis may be creeping back.

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Chanos: “Best time in recent memory to get short”

Billionaire investor Jim Chanos, who famously shorted Enron before the company collapsed, told CNBC on Thursday that now is one of the best times in recent memory to get short.

“I think the risks have increased in the U.S. market rather dramatically in the past year,” Chanos told “Closing Bell.” “Are we at some sort of top? I have no idea, but I do know that people that were eschewing risk in 2009 when they should have been taking it are now embracing it in late 2013.” Here is a direct video link.

He also spoke about the banking crisis resurfacing in China this week and downside that presents to other markets. Here is a direct video link.

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