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Jewish World Review March 3, 2000 /26 Adar I, 5760

Michelle Malkin

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Consumer Reports



Double standard for day traders? -- AS IF WE NEEDED any more evidence that the nosybodies in our nation's capital have way too much time on their hands, along comes the U.S. Senate Permanent Subcommittee on Investigations to rescue a foolish group of Americans from their own financial irresponsibility.

These "victims," the Senate panel claimed in hearings last week, have been duped by the burgeoning day-trading industry.

Day trading, explains subcommittee chairwoman-turned-financial expert Sen. Susan Collins (R-Maine), "involves taking positions in stocks for very short periods of time, usually minutes or hours, but rarely longer than a day…The firms that cater to day traders provide their customers high-speed computer access and real-time market quotes, both of which are necessary to take advantage of small changes in stock prices."

You might think that a prominent senator from the party of smaller government, free markets, and personal responsibility would applaud the direct access and technical innovation that day-trading brokerages provide their clients. Or that she would at least butt out of their private-sector business with a simple admonition to let the trader beware.

Instead, GOP Sen. Collins – doing her best Ralph Nader impression -- commissioned an eight-month, taxpayer-financed investigation of the industry. It concluded that day-trading firms sometimes accept people as customers who shouldn't be trading. "(F)or novice, undercapitalized traders, there is almost no chance of success," Sen. Collins bemoaned.

Oh, what would we ever do without the regulatory powers of this Big Mother Hen?

Outside the Beltway, there's a simpler term for "novice, undercapitalized traders:" Shmucks. They are people like Carmen Margala, a jobless woman from San Diego, Calif., who testified before the Senate subcommittee that she was deceived by a day trading firm called All-Tech.

"In approximately August 1998, I saw an All-Tech television commercial which made it appear quite easy to make money and achieve financial independence as a day-trader at All-Tech," Ms. Margala said. "(T)he ad stated that I could start with as little as $10,000. At the time, I was not employed, had no income and was looking for a new profession."

Instead of watching TV and blowing her limited resources on get-rich-quick schemes, perhaps Ms. Margala should have been out pounding the pavement – looking for an honest job. This point naturally escaped the members of the Senate panel, many of whom have never themselves made an honest living. Instead, the politicians listened empathetically as Ms. Margala passed the blame for her poor judgement to the day trading company.

No one at All-Tech, she complained, "ever discussed risk, or my tolerance for risk, my background, goals or objectives, past experiences, my financial position or anything else other than how much money could I deposit."


All-Tech's CEO Harvey Houtkin ably defended his industry against a hypocritical crackdown: "Is there an occasional rogue broker? Does someone fail to fill out a form properly? Absolutely. But then again, if you're looking to regulate and close down this type of activity, let me tell you, there won't be a business left in this country."

Indeed, if the government applied its standards for high-risk gambling evenly, every state-sponsored lottery in the nation would have been shut down by now. Deceptive advertising? Terrible odds? Poor returns? Targeting the "undercapitalized?" State lottery monopolies, which openly target the young, old, poor, and uneducated, are arguably the worst perpetrators of these tactics to lure repeat customers into an abysmal, money-losing addiction.

Government lottery sales have skyrocketed from $ 2 billion to $ 35 billion over the past 25 years, thanks in large part to slick ad campaigns that saturate the airwaves around the first of each month, when Social Security and welfare recipients receive their cash benefits in the mail. Unlike day trading ads, lottery ads claiming "You could be a winner every day" are exempt from regulations that guarantee truth in advertising.

So where's the outrage? Where's the federal investigation? Where are Sen. Collins and her gallant colleagues so eager to use their coercive power to protect the country's suckers and saps from squandering their money?

We are free to be stupid investors, it seems, but only if it lines the pockets of our saviors.

JWR contributor Michelle Malkin can be reached by clicking here.


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© 2000, Creators Syndicate