Getting It on the Dark Side of the Moon

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

The Senate Banking Committee held hearings on May 7, 2003 on the $1.4
billion settlement with 10 Wall Street firms accused of issuing
self-serving stock research to unsuspecting investors.  The general
conclusion of the hearing was the the high profile agreement did not go
far enough, and it did not change the culture of the Street to prevent
future abuses.  Senator Paul Sarbanes, Democrat from Maryland, said:
"Some CEO on Wall Street just don't get it," referring to Morgan Stanley
CEO Phillip Purcell who made public statement to the effect that Morgan
Stanley will not be affeccted by the research pact, and to Stan O'Neal,
CEO of Merrill Lynch warning that excessive regulation on free
enterprise risk taking would lead to economic stagnation.

Former investment banker Wiiliam Donaldson, new head of the SEC to
replace Harvey Pitt, responded: "We are not going to assume they do "get
it."  Dick Grasso, Chairman of NYSE, who took in a cool $10 million in
pay in 2002, while investors lost 50% of their investments, said: "If
people fail to 'get it', they won't be in the busines.  Robert Glauber,
new head of NASD who replace Frank Zarb, said flippingly: "Those who
don't 'get it' are going to 'get it'."

Apparently 'getting it' is rather painless. Jack Gruman of Smith Barney
of CitiGroup and Henry Blodgett of Merrill Lynch were fined $20 million
each and barred permananently from the security bsuiness. No big deal to
these two men who had been taking in $60 million a years for some time.
 And as for the 10 firms, there is insurance coverage and tax
deductions and write offs to sushion the fines.

The hero of the settlement was Elliot Spitzer, newly elected MY Attorney
General said that regulators would have to have been  on the dark side
of the moon to not notice the abuse.  Self-regulation failed, he
pronounced.  Self regulation is of course the slogan of the small
government, free enterprise movement. The market will keep participants
honest, they say. Harvey Pitt was appointed by Bush to promote self
regulation. Spitzer also suggested that Congress caved to Wall Street
lobbists (read campaign contributions) to limit resources of the SEC to
properly perform its duty.  No one mentioned the word corruption.

Well, the fact is that everybody knew what was happening.  It was not
the lack of inspectors, even though that was a true shortcoming.  What
went wrong was not that these deals were not open secrets, what went
wrong was nobody thought they were illegal, until investors started to
lose money.


The real problem remains with the research anyayses that through
"reform" will be labeled "honest" and "trust worthy" while in fact they
continue to be no better than the blatantly illegal ones.  Analysts who
hyped a stock on behalf of a single bank client is no worse than raging
bulls who hype the whole economy on behalf of the whole security
industry.  The only difference is that the former are now criminals, and
the latter are still patriots who believe in America.


Henry C.K. Liu