Mary Schapiro thinks Flash Crash "Anxiety" may have contributed to retail investors running for the hills

By Marcy Gordon (AP)
9/7/10

WASHINGTON — Anxiety over May's "flash crash" on Wall Street may have contributed to the withdrawal of retail investors from the stock market in recent months, the head of the Securities and Exchange Commission said Tuesday.

SEC Chairman Mary Schapiro said the panicked disruption, which saw the Dow Jones industrials plunge nearly 1,000 points in less than a half-hour, "was clearly a market failure" that heightened concerns over the fast-evolving structure of the market.

Schapiro said the SEC has received written comments from brokerage firms saying their retail customers have pulled back from the market since the May 6 plunge. Many individual investors filed comments that are sharply critical of the current structure of the market, Schapiro said in a speech to the Economic Club of New York.

Schapiro acknowledged there could be many reasons for investors withdrawing from the market. But she said the issue is troubling, especially if investors' concerns about the market in the wake of the plunge "are playing even a small role in investor decision-making." More on Schapiro's Anxiety

Grandpa

Yes Mary, there very well could be many reasons for investors withdrawing from the market. Your choice of "withdrawing" is classic government "understatement speak" as retreating and fleeing from the market more aptly describe the retail investor.

I maintain retail investor "anxiety" stems from a history of the equity market pillaging retail investors and an absence of proactive enforcement courtesy of the Securities and Exchange Commission. Individual investors have been and continue to be duped and abused by Wall Street players and the CEO con artists of publically traded companies. Given the following "barely scratched the surface" recap, anguish and angst are better descriptors versus "anxiety".

1. Bernie "I do not believe I have anything to hide" Ebbers. Nothing to hide other than $11 Billion worth of WorldCom accounting statements.
2. Jack "WorldCom Cheerleader" Grubman of Smith Barney who reiterated his buy rating 3 months prior to WorldCom filing for bankruptcy, cut to neutral one month later and cut to underperform 2 days prior to WorldCom filing for bankruptcy.
3. Henry "internet stock pumper" Blodget of Merrill Lynch fined $4 million and banned from the securities industry for life. industry for life
4. Ken "I was fooled" Lay during a four period made $217 million from stock options and another $19 million in salary and bonuses while running Enron into bankruptcy. Let's not forget while he was selling stock, he was advising employees to continue to purchase Enron stock.
5. Lehman Brothers files for bankruptcy mid September 2008 while Moody's, Standard and Poor's and Fitch maintained at least an "A" rating right up to bankruptcy filing.
6. Moody's maintained a AAA rating on AIG until hours prior to AIG's collapse.
7. Bernie "I had a great run" Madoff and his $18 billion Ponzi Scheme.
8. January 2006. The SEC and McAfee simultaneously settled the case (SEC complaint stating McAfee overstated its revenues by $622 million in order to meet revenue and earnings targets and understated its cumulative net losses by $353 million). McAfee paid a fine of $50 Million.
9. August 2009, GE settles SEC fraud charges for $50 million without admitting or denying SEC's allegations.
10. Marvell Technology Group settles with SEC ($10 million fine) on regulator's accusations of improper backdating of stock options. Marvell neither admitted nor denied wrongdoing but did agree to refrain from future violations of the securities laws
11. A Federal judge said Monday (2/22/10) he would reluctantly approve an amended $150 million settlement between the Securities and Exchange Commission and Bank of America to end civil charges accusing the bank of misleading shareholders when it acquired Merrill Lynch.
12. July 2010, Securities and Exchange Commission today announced that Goldman, Sachs & Co. will pay $550 million and reform its business practices to settle SEC charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse. Goldman regrets that the marketing materials did not contain that disclosure.
13. Ben Bernanke (5/17/07): “The sub prime mess is grave but largely contained. Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the sub prime sector on the broader housing market will likely be limited”.
14. April 2009, U.S. accounting rule makers (FASB) bowed to congressional and financial industry pressure on Thursday by allowing more flexibility in valuing toxic assets, a move expected to boost bank earnings and improve their capital levels.
15. June 2010, More than half of the lobbying force seeking to influence landmark financial reform legislation is made up of former members of Congress, Capitol Hill staffers and executive branch employees, according to a Center for Public Integrity analysis
16. August 2010, (AP-New York) — The 10 banks that received the most bailout aid during the financial crisis spent over $16 million on lobbying efforts in the first half of 2010, as the debate over financial regulatory reform reached its height.
17. Regulators are scrutinizing what some in the stock market are calling "quote stuffing," trading in which unusually large numbers of orders to buy or sell stocks are placed in a fraction of a second, only to be canceled almost immediately. The Securities and Exchange Commission has begun looking into whether the practice is putting some investors at a disadvantage by distorting stock prices, according to people familiar with the matter.

Perhaps your assessment is correct Ms. Schapiro, the fundamental basis of retail investor "anxiety" was a single day "flash crash"...