The Subtle Influence
Sprache: Englisch
Verlag: iUniverse, 2010
- Softcover
- Neu

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- Titel
- The Subtle Influence
- Autor
- Bearden PH D, Frank C
- Verlag
- iUniverse
- Erscheinungsjahr
- 2010
- Zustand
- New
- Einband
- PAP
- Sprache
- Englisch
- ISBN-10
- 1450233384
- ISBN-13
- 9781450233385
- Artikelgewicht
- 433 Gramm
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Auszug. © Genehmigter Nachdruck. Alle Rechte vorbehalten.
The Subtle Influence
Conflicts of Interest in Financial PlanningBy FRANK C. BEARDENiUniverse, Inc.
Copyright © 2010 Frank C. Bearden, PhD.All right reserved.
ISBN: 978-1-4502-3338-5
Contents
Preface...........................................................................viiChapter 1 Introduction: Are Conflicts of Interest a Big Deal?.....................1Chapter 2 Serving Up Damage to Professional Judgment..............................23Chapter 3 What Happened?..........................................................37Chapter 4 Naming the Problem......................................................48Chapter 5 Conflicts That Are Not Conflicts Of Interest............................63Chapter 6 The Appearance of a Conflict of Interest................................77Chapter 7 Conflicts of Interests Outside Of Practice..............................88Chapter 8 Conflicts of Interests within Practice..................................106Chapter 9 Indications of Their Presence...........................................125Chapter 10 Remedies...............................................................138Chapter 11 Suggestions on Practice Policy.........................................154References........................................................................159Index.............................................................................171
Chapter One
Introduction: Are Conflicts of Interest a Big Deal?Conflicts of Interest in General
As this introduction is being written in early June of 2009, the United States is slowly emerging from what has been termed by Jack Healy in the New York Times as "the worst financial crisis since the Great Depression" (Healy, June 4, 2009). The analytical work as to the reasons for the crisis is still in process, but some of the broad contributing factors are assumed to be the issuance of large numbers of subprime mortgages, the drop in housing prices, defaults and foreclosures of the mortgages, and the run on capital for commercial and investment banks and other large financial institutions, not necessarily in that order. Because a significant part of the damage can be attributed to the general subject of this book (Strier, 2008), the event seems an appropriate place to begin a discussion of conflicts of interest. What follows is a discussion of some of the more significant factors at work in what occurred, to uncover the subtle role played by a major conflict of interest.
The Subprime Mortgage Crisis Sold and resold.
In the recent past, subprime mortgages in the U.S. began being issued on a large scale to persons with low credit scores, little credit history, or other credit impairments. In 1996, $96.8 billion of subprime mortgages were originated and in 2006 the total rose to approximately $600 billion (Coval, Jurek, & Stafford, 2009). The issuing organizations of subprime mortgages sold these loans to investment banking firms to receive fresh capital to lend again. The investment bankers then structured these loans into what can be loosely categorized as collateralized debt obligations or CDOs, to sell to institutional investors such as commercial and investment banks, hedge funds, pension plans, and insurance companies. The investment banks sought ratings on credit quality by credit rating services such as Moody's, Standard & Poors, and Fitch to facilitate the sales. The rating services were paid for their work by the investment bankers. The rating services also regularly provided these CDOs with high level, investment grade ratings that reflected little default risk, similar to the ratings for high quality bonds (Strier, 2008). Between 2005 and 2007, approximately 80 percent of the subprime mortgages were in CDOs given AAA ratings (Kim, 2008).
In fact, the subprime mortgages that were a major part of the collateral in the CDOs were of low credit quality (Coval, Jurek, & Stafford, 2009). The default rate for CDOs with investment grade ratings was significantly higher than that for similar ratings given to corporate bonds. Corporate bonds receiving Moody's lowest investment grade rating of Baa between 1983 and 2005 had a default rate over 5 year periods of 2.2 percent, while CDOs for the same period defaulted at a rate of 24 percent (Calomiris & Mason, August 24, 2007).
Highly rated CDOs had a distinct advantage over similarly rated bonds in that they had higher rates of return (David & Goldstein, June 18, 2007) which was a primary reason for their popularity. In 2006 the issuance of CDOs in the United States was $312 billion, a 102 percent increase from 2005, also a record year (Thompson, Callahan, O'Toole, & Rajendra, 2007). Had the CDOs been rated as somewhat speculative, their placement with institutional investors would have been on a much lower scale.
As CDOs grew in popularity, the revenue generated by credit rating services in their work with investment bankers grew significantly. Moody's revenue for the fourth quarter of 2007 rose 86 percent, and revenue for the year rose 24 percent. CDOs accounted for 44 percent of the revenue (Strier, 2008). In addition, credit rating organizations also provided consulting services to the investment bankers for the CDOs they later rated. These services included how to structure the debt products to receive higher ratings. Consulting on CDO type products accounted for 40 percent of Moody's revenue in 2006 (Levitt, Sept. 7, 2007).
Defaults begin.
With CDOs backed by subprime mortgages in place on a large scale in the portfolios of large commercial and investment banks, insurance companies, and hedge funds, the subprime mortgages began to default. The defaults occurred due to the interaction of a few distinct factors. A good place to begin reviewing these factors is with the characteristics of subprime loans. The structure of subprime loans was a major contributor to rising defaults. The majority of subprime mortgages originated from 2003-2007 were designed with a fixed rate of interest for two or three years and then an adjustable rate tied to a measure of market interest rates. These were known as short-term hybrids. Typically interest rates rose two or more percentage points after the initial period. Through mid-year of 2008, delinquencies on adjustable-rate mortgages rose to over 29 percent, while fixed-rate mortgage rates rose to 9 percent (Mayer, Pence, & Sherlund, 2009).
Lowered standards of credit worthiness also were a significant contributor to defaults. Median loan-to-value ratios increased from 90 percent in 2003 to 100 percent for originations in 2005 and 2007. Subprime loans with a second lien increased from 7 percent in 2003 to 28 percent in 2006. Subprime loans with the highest loan-to-value ratios at origination from 2005-2007 had the highest rates of default. Loans with little or no documentation of income or assets also contributed to the rising default rate. These subprime loans increased from 32 percent of the subprime loans originated in 2003 to 38 percent in 2007. From 2003 to 2008 serious delinquencies of subprime loans with little or no documentation rose from 5 percent to over 25 percent, while fully documented loans rose from 5 percent to approximately 20 percent (Mayer, Pence, & Sherlund, 2009).
The combination of subprime mortgages structured with adjustable rates and lowered credit worthy standards produced a loan portfolio with inherent vulnerability to changes in the larger economy. Two such economic changes that brought out this vulnerability in...
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COLLECTION:
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COLLECTION:
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We will only use your personal data when the law allows us to. Most commonly, we will use your personal data in the following circumstances:
In performance of a contract with you; and/or
compliance with a legal obligation; and/or
vital interests of the data subject; and/or
where it is necessary for our legitimate interests (or those of a third party) and your interests and fundamental rights do not override those interests.
We may also use your personal data in the following situations, which are likely to be less common:
where we need to protect your interests (or someone else’s interests);
where it is needed in the public interest or for official purposes.
In respect of all disclosures of personal data, we will only share the personal information which is necessary for the particular purpose for which it is provided, or where we have another legitimate interest in doing so, and we will ensure that the personal data is appropriately protected.
In respect of special categories of personal data, we may process this in the following circumstances:
in limited circumstances with your explicit written consent; and/or
where we need to carry out our legal obligations and in line with our policies; and/or
where it is needed in the public interest (such as for equal opportunities monitoring or in relation to our occupational pension scheme), and in line with our policies; and/or
where it is needed to assess your working capacity on health grounds, subject to appropriate confidentiality safeguards.
Less commonly, we may process this type of information where it is needed in relation to legal claims or where it is needed to protect your (or someone else’s) interests and you are not capable of giving your consent, or where you have already made the information public. We may also process such information about our people (or former people) in the course of our legitimate business activities with the appropriate safeguards.
The special categories of personal data may be used in the following ways:
in relation to leaves of absence, to comply with employment and other laws;
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in relation to your race, national or ethnic origin, religious, philosophical or moral beliefs, or your sexual life or sexual orientation, to ensure meaningful equal opportunity monitoring and reporting.
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Personal data may be transferred to service providers who support the operation of our business (such as payroll service providers), to other third parties reasonably necessary in the conduct of our business (including insurers, professional advisors, regulators). These third parties may be acting as processor, or controller of personal data in their own right.
In respect of all disclosures of personal data, we will only share the personal information which is necessary for the particular purpose for which it is provided, or where we have another legitimate interest in doing so, and we will ensure that the personal data is appropriately protected.
RETENTION PERIOD:
We will keep personal data only for as long as is necessary to fulfil the purposes for which we collected it, including for the purposes of satisfying any legal, accounting or reporting requirements. We will normally keep personal data of applicants who we do not employ for six months after we receive it.
We will keep personal data of employees throughout your employment and normally for a minimum of six years after your employment ends.
Changes to your personal data
It is very important that the personal information that we hold about you is accurate and current. Please tell us if your personal information changes during your relationship with us.
Data Security
We have put in place measures to prevent your personal data from being accidentally lost, used or accessed in an unauthorised way, altered or disclosed. In addition, we limit access to your personal data to those of our people and other third parties who have a business need to know. They will only process your personal data on our instructions and where they have agreed to treat the information confidentially and to keep it secure. We have put in place procedures to deal with any suspected data security breach and will notify you and the ICO of a suspected breach where we are legally required to do so.
Where we store your personal data
We principally store data, both electronically and on file, at our office.
Personal data may be transferred outside of the EEA by processors acting on our behalf. For transfers to countries not considered adequate by the EC, we will ensure that personal data is adequately protected, as required by the GDPR. This would include by use of the Standard Contractual Clauses adopted by the EC to protect personal data.
Your rights
Under certain circumstances, you have the right by law to request:
access to your personal data. This enables you to ask to receive a copy of the personal data that we hold about you and to check that we are lawfully processing it.
correction of the personal data that we hold about you.
erasure of your personal data.
object to processing of your personal data where we are relying on our legitimate interest and there is something about your particular situation which makes you want to object to processing on this ground. You also have the right to object where we are processing your personal information for direct marketing purposes.
restriction of processing of your personal data.
transfer of your personal data to another party.
Links from our website
Our website may, from time to time, contain links to and from the websites of third parties that we permit to make such links. If you follow a link to any of these websites, please note that these websites have their own privacy policies and that we do not accept any responsibility or liability for these policies. We recommend that you check these policies before you submit any personal data to these websites.
CHANGES TO THIS PRIVACY POLICY
Any changes we may make to our privacy policy in the future will be posted on our website, so please ensure that you are viewing the correct version.
Please contact us if you have any questions, comments or requests regarding this Privacy Policy.
Last amended May 2021.