Regulation Could Be Recession's Silver Lining

By Michelle Singletary
Thursday, December 11, 2008

There are many good things that can come out of a recession, especially one largely brought on by greed, corruption and corporate mismanagement.

An economic downturn can result in tougher consumer protections. And Lord knows, we need to protect consumers.

Specifically, we need better regulation of the financial services industry. Either because of ignorance or poor judgment, or both, the financially challenged need protection.

I know that anti-regulation zealots pull their hair out at the mere suggestion of government oversight. But let's get real. As a society, it would be naive and reckless to just say "caveat emptor," which is Latin for "let the buyer beware."

I'm stunned and disappointed at the number of homeowners I've met who admit they didn't fully understand the mortgage papers they were signing. They say they didn't know they had the escalating adjustable-rate mortgages that have caused so many foreclosures.

The problem is, buyers don't beware. And we all know you can't expect the folks selling stuff to always do the right thing. Certainly, the debacle in the housing industry is proof of this.

At nearly every workshop I give on basic investing, somebody who has a workplace retirement portfolio containing equity investments asks me how they can get into the stock market.

Now more than ever, we need better regulation of people calling themselves financial planners so that people understand what investing really means.

Investors are dismayed and distraught to see their portfolios tanking so badly. We've had so many good years in the equities markets that people forgot or didn't realize that when you invest, you put your money -- all of it -- at risk for loss. Therefore, you should not invest a dollar you can't afford to lose -- even for retirement.

Goodness knows I never thought I would see the day that my portfolio would lose 30 percent of its value and that some of my investments would dip below my cost basis (meaning below the purchase price). But I'm not shocked. Ticked off, but not shocked. Losing money when you invest is always a possibility.

I'm encouraged that the nation's three major financial planning organizations -- the Certified Financial Planner Board of Standards, the Financial Planning Association, and the National Association of Personal Financial Advisors -- have said they are working together to promote more consumer protections.

The three organizations rightly expect reform in the financial services industry when Congress convenes in January.

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