I think yesterday the deal with Citigroup, and now the acceptance of such a deal by Merrill Lynch will be the corner that turns the market. The deal means that small investors will get their principle back at face value. Larger investors do not get to benefit from the deal. I feel the reason why this deal is important is that the small investor can feel good about themselves again.


Put yourself into the context of the smaller investor. You had a bunch of these "conservative" investments that lost oodles of value and could not be traded. You would be very pessimistic and you would not be spending because this money most likely was savings, retirement, or college money. You would be concerned on how to make up for this loss. This would cause you to tighten your pocket book.

However, with this deal those people get their money back. They get the par value investment and thus get their savings, retirement or college money. And that other money that they have been saving to make up for the losses is "extra money". Yes there is inflation, and there are dropping housing prices, but the savings issue has been addressed. This I feel is a very big gain in terms of market stability and confidence. And that is why I think we might just have turned the corner and the market might start moving up again.

So where does this leave corporate clients? Large investors? Hanging in the wind, and rightly so. Retail investors do not have the means to do due diligence and are at the full mercy of the brokerage or investment bank. For corporate clients this is not the case. Corporate clients have hoards of lawyers and finance people who should be able to understand the mechanics of the financial instruments. If these individuals are not able to figure out the financial instruments then I would ask how capable are you as a financial person in general.

Put it into the following context. You are a corporation and are the CFO, meaning Chief Financial Officer. As CFO you have a degree in finance and have an understanding of the financial markets because, well, that is your job. If as a CFO you say, "hey you sold me something that was not what you said it was", my question is, "your job is???"

Let me put it into another context. I am an engineer and as per my law course, anything that has to do with technology or technical issues makes me liable or able to understand. The way that it was explained to me is that as an engineer I have the ability to understand technology and technical issues, thus I am able to make intelligent and informed decisions. If my decisions are wrong or negligent then I am at fault because ignorance is not a defence. Likewise I feel with the CFO who did not do due diligence. With retail investors this is different, and the law considers this a very different situation. So don’t confuse the two.