There have been numerous sensational headlines about the financial markets in recent days. The price of gold and the price of oil have reached all-time highs. The U.S. Dollar reached record lows against many currencies. Economists agree that the economy is now in recession. And the governor and former attorney general of New York resigned amid a sex scandal.

Any of these situations alone could result in significant market moves. When several occur at the same time, their impact is magnified and triple-digit moves in the Dow become the norm, rather than the exception.

Last week I wrote about gold and oil and nothing has changed as those sectors remain the strongest. This week much of the news has focused on the resignation of Eliot Spitzer, but the coverage has primarily dealt with his sexual dalliances. As a result, you might have missed the fact that when Spitzer’s problems were announced, traders on Wall Street cheered.

When he was New York’s attorney general, Spitzer aggressively went after what he described as corruption on Wall Street. But his actions reverberated far beyond the big brokerage and trading firms he was trying to clean up. Spitzer always seemed more concerned about generating headlines than he was about protecting the interests of ordinary investors. He tended to use a cannon when a BB gun would have been more appropriate. In doing so, he often harmed small investors while helping the big Wall Street firms he was attempting to rein in.

As an investor, if you have ever been frustrated by trading restrictions or fees imposed by mutual fund companies, chances are you can attribute it to Spitzer’s actions. As attorney general, Spitzer believed that some fund companies granted unfair trading privileges to some of their bigger clients. Fund companies reacted by clamping down on trading activity for all of their clients, including small individual account owners.

During his tenure, Wall Street insiders wondered publicly why he went after activities that the Securities Exchange Commission and the National Association of Securities Dealers did not perceive as problems. He professed a policy of zero tolerance for violations and companies that came under his scrutiny would quickly admit to wrongdoings just to get his agency to leave them alone.

Spitzer now finds himself the target of an investigation, rather than the instigator of it. For those on Wall Street, the irony was too rich to ignore.
F.S.

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