Wall Street Coverup

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

The big news today is the $1.5 billion Wall Street settlement which
included findings of fraud against three banks - Citigroup's Salomon
Smith Barney unit, Credit Suisse First Boston and Merrill Lynch. The
regulators also released new evidence showing alleged conflicts of
interest at other leading banks including Goldman Sachs and Morgan Stanley.

The banks were accused of betraying investors by promising companies
flattering stock research in exchange for investment banking work.

Some were also accused of bribing their corporate clients' senior
executives with shares of lucrative initial public offerings in return
for business.

Under the settlement, the banks, which neither admitted nor denied
wrongdoing will pay $1.4bn in restitution and to supply independent
research to investors.

It also requires the banks to introduce structural reforms to insulate
research analysts from the influence of investment bankers.

These reforms are widely expected to end the multi-million dollar pay
packets some analysts enjoyed in the bull market that were justified by
the amount of investment banking business they brought in.

But on Monday it emerged that CSFB had offered an equity analyst at
rival JP Morgan Chase a package that could earn him up to $4m in the
first year.

In addition to Monday's fines, the banks are expected to pay billions of
dollars more as a result of private lawsuits brought by aggrieved investors.

But a group of culprit got off untouched.  They are institutional money
mnangers who followed the pitches of analysis even when they should have
known or actually knew such pitches were unreliable, to say the least.
The rationale was that money managers are all technical investors, not
fundamental investors. They care less why share prices go up. What they
care about is not be left behind when prices rise.  So they form a herd
movement that analysts can play on and their actions unduely enhance the
power of analysts to influence the market.  Money managers earn fees by
trading up the market but they are not oblidge to disgorge last years
fees when the market falls and their empolyer institutions earn their
profit partly from high trade volume.

So this settlement settles nothing. Wall Street is structured to deliver
compensation to the professionals, not to provide an honest venue for
investment.  That is how the Chairman of Citigroup can earn over $1
billion in a 10 year contract. Most chairmen of investment banks earn
over $60 million a year on an average year and an average partner makes
$20-30 million. That kind of compensation without risk exposure is hard
to earn honestly.

Henry C.K. Liu