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How Wall Street Can Regain America's Trust

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Economic recovery requires recovery of the public trust.

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In January of this year, Barack Obama, like the 43 others before him, took the Oath of Office of President of the United States by reciting the very familiar words:

"I do solemnly swear that I will faithfully execute the Office of President of the United States, and will to the best of my ability, preserve, protect and defend the Constitution of the United States."

And while he has since been referred to as "Commander in Chief," I would suggest -- at the risk of alienating constitutional lawyers around the country -- that another title for President Obama should be "Principal Fiduciary Officer of the United States." I believe that the words "preserve, protect and defend" embody the responsibilities of great fiduciaries.

I raise this issue today because I believe that, underlying our current credit crisis, is a much more profound failure than that of consumers borrowing too much money: To me, our greatest shame is the collective abdication of responsibility by those legally and by position entrusted to be fiduciaries - and to act accordingly.

Of the many available definitions of "fiduciary," I thought Duhaime.org put it best: "A 'fiduciary' has rights and powers which would normally belong to another person. And a fiduciary holds those rights which he or she must exercise to the benefit of another (the "beneficiary")." Finally, and most importantly, "a fiduciary must not allow any conflict of interest to infect their duties towards the beneficiary and must exercise a high standard of care and good faith in protecting or promoting the interests of the beneficiary."

Now, for most people, the term "fiduciary" is used synonymously with "trustee," the most classic form of a fiduciary relationship. But in the world of finance and industry there are any number of fiduciaries: Corporate chief executives and boards are all fiduciaries, as too are financial advisors, investment advisors, 401(k) plan sponsors, hedge-fund managers and, importantly, I would add every regulator.

But I would offer that, in good times, differentiating good fiduciaries from bad is all but impossible. Worse, I would offer that nobody cares. A rising tide raises all ships. But, to paraphrase Warren Buffett, when the tide goes out, it isn't hard to see which fiduciaries were swimming naked.

One need only pick up the paper every morning to see example after example of fiduciaries who failed to meet even their most basic responsibilities. In fairness to some, like the rank and file of Freddie Mac (FRE) and Fannie Mae (FNM), I would argue that their loyalties were compromised from the beginning. Then again, the fact that the government, shareholders, directors and executives all went along says it all.

And for Bank of America (BAC) Chairman Ken Lewis, isn't the real issue a fiduciary one? As in whether his primary loyalty is to his shareholders or to Government regulators? (And why, after hundreds of years of regulated banking in America, are we just now realizing this could be a conflict?)

And, finally, what does it say about our society when we need to introduce legislation referred to as a "credit-card holder bill of rights"?
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Position in SPY options and JPM
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