I have to turn in my post-election column before the election
has taken place, so my commentary is unaided by election results.
That didn’t stop anybody in 2000, so it’s not going to stop me. I’m
predicting an outcome of business as usual. The President will
continue winning approval for an aggressive foreign policy, but
aspects of domestic policy will appear spliced with segments of
Jackass, the Movie. The Dems keep their small advantage in
the Senate and play defense, keeping anything from getting done.
The GOP will maintain a small advantage in the House and act like
it has a Saddam Hussein-sized mandate. And Eliot Spitzer, the New
York Attorney General, will continue to act as a de facto fourth
branch of government, Generalissimo of Financial Markets.
What is it about this guy? I thought, to seize this much power,
you had to behead somebody or have a soothsayer on the payroll.
Spitzer has obviously stepped into the vacuum created by Harvey
Pitt’s problems to provide regulation to the securities
markets.
Spitzer has proposed, as part of a settlement with Wall Street
banking firms charged with vague, though probably pervasive,
conflicts of interest, the creation of a panel overseeing stock
research for individual investors, independent of the investment
banking firms. The Wall Street firms would pay up to $1 billion to
fund this research. The Merrills and Goldmans and Salomons of the
world would still provide their own research, but only to their
institutional customers. That Pitt put himself and the SEC in a
position where they had to go along with Spitzer’s crazy idea is
reason enough why he has to resign from the SEC.
This has to be the dumbest thing to come out of New York since
Riverdance. First, the problem with the bad ol’ research
wasn’t that it misinformed investors. The problem was that it
manipulated the markets. Those reports were designed for
institutional investors and were then “leaked” to the media to get
the widest possible coverage. The goal was to get Maria Bartiromo
of CNBC, or theStreet.com, or the Dow Jones Newswire to “break the
story” of the latest top-secret recommendation. Ask Spitzer how
many people he thinks actually read those reports.
Second, research is just data. Those reports are made of facts
and recommendations. The facts are the same, regardless of who
reports them. The recommendations vary in value, depending on the
weight the investor gives them. If brokerage-firm recommendations
are inherently flawed, they’ll still be out there. And even if
these independent-report recommendations aren’t biased, why should
investors be giving them so much weight? Why is the government,
seeing investors led by the nose by flawed analyst recommendations,
trying to fix things by leading them by the nose by a different set
of recommendations?
Third, if investors want research independent of brokerage
firms, they can get already it. They can take their business to a
stockbroker whose company does not underwrite securities. Numerous
services, for not-outlandish fees, provide plain vanilla analysis
of companies. (Some brokerage firms provide this research to
investors for free.)
Fourth, who’s going to run this thing? I heard rumors of Paul
Volcker. Didn’t someone make him the figurehead of Arthur Andersen
and he lasted about as long as that pope who got poisoned in his
sleep? William Webster will probably soon be available. If the Dems
want to pick someone, check the results in Minnesota and see if
Mondale’s got free time. I’m betting Jimmy Carter won’t even take
your call.
Fifth, the government should be getting involved with this
problem, but not in this way. The U.S. stock market is the best in
the world because millions of people determine prices on a level
playing field. You can lose your shirt, but you generally do it
with knowledge of the risks, or in ignorance of readily available
information. The government should make sure the most information
is available, it’s available to everybody, and investors can
consider its source. Then it should get out of the way. I should be
allowed to peddle my opinions and facts, along with Merrill Lynch,
along with a scam artist who gets paid by penny-stock operators to
tout their stocks in Internet chat rooms. The government should
welcome us to peddle our information to the marketplace, as long
everyone knows I’m a volatile crank, Merrill Lynch is trying to get
business from the company whose stock it’s recommending, and the
chat room guy operates out of his mom’s basement.
Maybe I’m just in a bad mood because I’m not getting rich off
all this. Apart from having an under-appreciated book in print on
these timely issues, my hopes of making a few bucks off this
independent research thing have been dashed. Now that anyone can be
a stock analyst, I learned that the job’s suddenly not going to pay
very much.
To add insult to injury, I heard that Democrats supposedly had
10,000 lawyers spread across the country, ready to mount election
challenges. For all the grief I’ve taken over the years for
supporting Democratic candidates — my letter carrier still makes
sure to crumple up the annual Christmas card I get from the Gore
family — you’d think I would get one piece of legal work out of
it. Nothing.
The Arizona ballot could keep a lawyer busy for eons. Thanks to
our traditional distrust of government (though all my neighbors are
from Chicago and Philadelphia) anything that requires the
legislature to actually do anything has to be passed by the voters,
so there are a pile of propositions: three alone on casino gambling
(including separate propositions to increase it and decrease it);
one of the casino gambling propositions is supported by people who
think gambling is evil and opposed by those who want the revenue,
while some of the same people who want to limit casinos are
supporting extending the lottery because the state needs the money;
one proposition for money to build more jails because the ones we
have are filling up; one to put drug abusers in jail; and one to
keep marijuana users out of jail. I discovered George Soros, one of
the world’s most successful investors, bankrolled the marijuana
proposition. I’ve never been a fan of pot, but if Soros is in favor
of it, maybe I’m backwards on the issue.
If you want some independent research on stocks, try reading the
company’s financial statements. I’d be happy to help you figure
them out but you’ll have to pay. I’ll be in my mom’s basement.
Bring a pizza. And some Oreos.
