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.
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