Some Links

by Don Boudreaux on May 22, 2010

in Books, Civil Society, Current Affairs, Financial Markets, Monetary Policy, Politics, Regulation, Trade

My fellow cajun and GMU colleague – over in the law school – J.W. Verret was interviewed earlier this week by the Wall Street Journal on legislation that would impose fiduciary duties on broker-dealers toward their clients.  Here’s an excerpt:

DJ [Deal Journal]: How would this proposal change Wall Street?

Verret: It’s a ground-breaking already to require broker dealers to uphold a fiduciary duty. It’s doubly ground-breaking to criminalize the violation of those duties. Brokers have an obligation to get their clients the best price, like a real-estate agent. But fiduciary duty goes above and beyond. It puts all the risk on the broker.

DJ: What are the potential consequences of this proposal?

Verret: If you pay a financial adviser at Fidelity to nursemaid your investment you are going to pay a higher fee. But a sophisticated investor wants the freedom to hire a broker to make a trade. That freedom of choice is going to be hampered by this proposal. Broker-dealers are going to have to hedge and insure against the risks. There are huge transaction costs to making this criminal.

DJ: What’s wrong if an investment bank has to spend more money?

Verret: I worry the cost of doing business will be passed along to investors. [The amendment's sponsor Sen. Arlene] Specter hasn’t hasn’t thought through how this amendment will change how markets function. [Specter] suffers from a fundamental misunderstanding of how markets function. This could freeze up markets in the middle of a slow recovery.

My former GMU student Alex Nowrasteh, writing at Forbes.com, outlines the likely dampening effect that Arizona’s new immigration statute will have on that state’s business climate.

I should have noted this happy event several months ago, but the third edition of Doug Irwin’s indispensable Free Trade Under Fire is now available.

Mary Anastasia O’Grady  – who never writes a word that isn’t worth reading – weighs in on Hombre Hugo Chavez’s destructive monetary policies.

John Stossel hopes that Rand Paul will continue to be a principled defender of individual freedom.

EconLog’s David Henderson also jumps into the Rand Paul brou-ha-ha.

Finally, Mike Munger asks an excellent question.

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