Investors Press Tester About Bear Stearns Bailout

By Beacon Staff

On a rollercoaster day where the Federal Reserve cut a key interest rate three-quarters of a point to 2.25 percent and the Dow Jones shook off early morning doldrums to surge 420 points, a group of Flathead residents questioned U.S. Sen. Jon Tester on why federal officials weren’t being more forthright with the public about the real health of the economy.

“Go back and tell the people in Washington – talk to us and tell us how bad it is, so we can make informed decisions,” said one man in the audience of 390, complaining that while inflation may have risen by a few percentage points, the cost of food and other essential goods has doubled. Other members of the audience questioned Tester, a Democrat, about the move by the Fed, the previous weekend, to provide emergency financing to bail out Wall Street investment firm Bear Stearns.

Tester, who sits on the Senate Banking Committee, said while he had not yet spoken with the chairman, U.S. Sen. Chris Dodd, D-Conn., it was highly likely Treasury Secretary Henry Paulson would be asked to explain the Fed’s extraordinary action in a hearing before the committee.

“I can just tell you it’s going to happen,” Tester said. “That was a big cash outlay.” Tester added that his questions on the Fed move ranged from the type of severance package Bear Stearns employees received, to the potential wider effects on the economy had the bailout not occurred.

The questions took place at an investor forum, headlined by Tester, held last week by the Financial Industry Regulatory Authority (FINRA), the largest non-governmental regulator of securities firms in the U.S. And while the purpose of the forum was to inform investors about the services offered by the not-for-profit regulatory agency, the public questions and comments showed a cross-section of people deeply uncertain about the U.S. economy.

Several forum attendees interviewed said they came for the free salmon dinner, expecting to hear some type of investment sales pitch, but were surprised to find Tester at the event, and to learn that the forum was simply a way to raise awareness about FINRA’s investor services.

Some found the investment advice in FINRA’s presentation – with such mantras as “diversify, diversify, diversify” – to be rudimentary. “Most of the info they had I already know,” said Doug Selivanoff. But others did not know the kind of free services FINRA provides, including dispute resolution, investor education programs, and an online database of securities brokers that allows investors to verify the background of the person handling their money. “I never knew about that, that you could screen brokers,” said Chris Pilossoph.

Elisse Walter, FINRA’s senior vice president of regulatory and policy programs, explained the niche that her agency occupies in the market overseeing more than 660,000 investment professionals and conducting 2,500 audits annually on the firms it regulates – in addition to the oversight of the Securities and Exchange Commission (SEC).

“You want a regulatory system that’s robust, that protects people,” Walter said. “On the other hand, you don’t want to stifle investment.”

Questions by audience members ranged from whether FINRA has authority over the insurance and credit card industry (it does not), to several comments to Tester about the falling dollar. “As I’m bailing out these larger entities,” said one audience member, “even though I’m making money, my purchasing power may be decreasing.”

“Jon, I hope when you go back, I hope that all of you can get together and discuss the weakness of the dollar,” said another audience member.

Tester emphasized that he understood the concerns raised at the forum, noting that his farm suffered from skyrocketing fuel prices and his daughter and son-in-law have an adjustable-rate mortgage on their home. He also conceded that some federal officials might be overly optimistic in their economic assessments so as not to cause a panic. “We could be in for some difficult decisions,” Tester added.

But last week’s forum showed that many small investors, who have suffered their own setbacks, are looking for answers from the federal government about what they perceive as a double standard when it comes to financial risk.

“The events of the last week prove that if you’re a little bit larger than any of us,” said one audience member, “then maybe you’re too big to fail.”

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