Real World  |  FEB 2008

How Secure Are Your Securities? by John A. Sarkett

How Secure Are Your Securities? by John A. Sarkett How well protected are your stocks and options in your brokerage account? Two classic Zen koans and one modern riddle you may never have considered: What is the sound of one hand clapping? Does a dog have Buddha nature? And how well protected are the stocks and options in your brokerage account — not their value, which fluctuates, but their very existence? In peaceful financial times, that last query rarely arises. These are not peaceful financial times. The subprime shakeout has caused bank runs (Countrywide, Northern Rock), toppled CEOs (Merrill Lynch, Citigroup), and devastated broker stock values. The charts of Merrill Lynch (Figure 1), Bear Stearns (Figure 2), and E*Trade Financial (Figure 3) clearly depict the picture. Worse, it may not be over. More subprime loans will reset in the months ahead. The risk to the global financial system may be in the trillions of dollars. By getting involved in credit derivatives and mortgage loans, major financial firms such as Merrill Lynch, Bear Stearns, Lehman Brothers, Citigroup, and E*Trade, among others, have put their shareholders at risk for billions. Even more chilling, they may have also put in the same position their brokerage customers — that is, you.

by John A. Sarkett