Phil Trupp's Ruthless: How Enraged Investors Reclaimed Their Investments and Beat Wall Street Reviewed By Norm Goldman of Bookpleasures.com
Reviewer & Author Interviewer, Norm Goldman. Norm is the Publisher & Editor of Bookpleasures.com.
He has been reviewing books for the past fifteen years when he retired from the legal profession.
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Author: Phil Trupp
Publisher: John Wiley & Sons, Inc.
you are the least bit interested in investments and finance, you
probably by now have heard about Bernie Madoff's Ponzi debacle or the
fiasco of the collateralized debt obligations, as well as the other
financial innovations that in the late-2000s brought about a
financial crisis that is often called the Credit Crunch-sometimes
referred to as the Great Recession. However, how many of us have
heard of the auction-rate securities (ARS) scandal involving the
scamming of three hundred and thirty-six billion dollars by Wall
Yes folks, that's right, even though it seems unbelievable! And you are probably wondering what in the world am I referring to and what is an auction rate security anyways? Moreover, how were investors lured into investing into another one of Wall Street's innovative and ingenious schemes?
An auction rate security (ARS) is a debt instrument (corporate or municipal bonds) that have a long-term nominal maturity for which the rate of interest is regularly reset through a dutch auction. In Ruthless: How Enraged Investors Reclaimed Their Investments and Beat Wall Street, Phil Trupp describes these niche products as “debt obligations-bonds that promise to pay back an investment with interest. They are issued mostly by municipal organizations in need of cheap financing-charities, universities, museums, student loan organizations, hospitals and the like.” They are bonds that have fluctuating rates of interest and the “market makers” and Wall Street investment banks underwrote the bonds for the issuers while their brokerages managed the auctions at which they were sold to investors.
The interest rates on ARS were reset every 7, 28, or 35 days and before February 13, 2008, investors had little difficulty in selling their securities at auctions, that is, until the market suddenly collapsed. This left investors holding the bag with a product that no one wanted to buy and no market to sell them. All was not lost, provided you wanted to wait thirty or forty years wherein you probably would get back your money, as the original issuer was obligated to buy them back the bond at par value.
What actually happened was that in 2008 the ARS market was frozen and the auctions were failing. There were not enough bidders to purchase the securities and thus there was a liquidity problem. In addition, the investment bankers got rid of their ARS before this happened and were ordering their brokers to unload these products as soon as possible. Yet, at the same time, they were peddling this garbage to investors based on their assurances that these were just as safe as cash or money market funds yielding a slightly higher rate of return. For the most part, brokers never mentioned the word “bond” to their clients and furthermore they never produced a prospectus explaining the true nature of these investments or the potential risk involved. In fact, many of these salespeople knew very little about the true nature of these products.
In Ruthless, Trupp narrates how he got sucked into this messy financial investment trap, how he trusted his broker, and how fortunately he was able to retrieve all of his money, not without, however, a great deal of sweat, tears and hard work. Trupp, however, was not about to leave others high and dry, just because he was one of the lucky ones. With his seething attack on Wall Street investment bankers, Trupp has written a cautionary tale as to how you can easily be snared into the tentacles of the Wall Street sharks that are ruthless in sucking in your hard earned money. Furthermore, even if you wanted to fight them, the cards are stacked in their favor with their comfy relationships with politicians and watchdog organizations that are supposed to act impartially when called upon to intervene when disputes arise. Nonetheless, as we discover and as Trupp concludes, “ordinary investors can band together to beat Wall Street's bag of confiscatory tricks.”
There are many lessons taught in this book and above all, don't trust your broker-do your own homework. Trupp also includes an appendix where he itemizes several key caveats that are in themselves are valuable words of wisdom from people who know what they are talking about when it comes to investing.
passion that Trupp brought to his mission of taking on Wall Street
and eventually writing this book is admirable, and he shares that
passion in this memoir leaving us with some wise words: “We have
put Wall Street on notice. Shape up or those of us who are left will
ship out. We are no longer who you think we are.”
Trust me, this is one great book that you will want to read,
although, as in my case, it causes me to explode every time I hear
someone tell me that his or her broker told them about this wonderful
fund or product they have available. Don't believe them-do you own
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