October 31, 2012
After the September 11th attacks in 2001, US financial markets were closed for a week. Such a closure was unprecedented, as markets operate on the premise that investors must always be able to transact - the core principle of any marketplace. The implied liquidity that investors get from open markets is what makes it possible for investors to consider investing in the first place. No one would buy a stock or bond without a reasonable expectation that they could get their money when they want it, at market price.
Once the markets reopened on September 18th, the New York Stock Exchange and NASDAQ got together to design system redundancies that would prevent another shutdown due to an attack, natural disaster, or other problem with operating at the corner of Wall & Broad. The premise was that whatever might happen to a physical location, US financial markets would be able to keep operating. When I get exercised about this topic, sometimes I get a puzzled response from people. I suppose if you think that the financial markets are merely the Las Vegas of capitalism, or that markets are for hedge fund titans to battle one another, that's a reasonable reaction. But consider this: in the last two days, while the markets were closed, we received numerous requests from our clients to raise cash for one purpose or another - to pay the next tuition bill, a downpayment on a new home, replacing the family car, and so on. We get requests like this every day, routine requests that we routinely fulfill. With markets closed, some requests had to wait for today's reopening. Fortunately, that wasn't a problem for any clients. Why not just keep lots of cash on hand, in, say, a savings account? In many cases clients seek to actually earn a return on their money, and with most savings accounts paying a tiny fraction-of-a-percent interest, that's a guaranteed loss once you adjust for inflation.
My point is just this: the Giants of Finance run the exchanges. Those same Giants sunk billions into redundancy plans and backup systems, systems that all investors help pay for. Yet when the Giants couldn't get to Lower Manhattan, they pulled the plug on everything? Why bother planning at all?
This is another example of the big Wall Street banks and investment houses' indifference to average American investors.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).