Friday, April 19, 2002
Chinese Wall?-It's been a well-known fact for longer than I've been following finance (thus at least the mid-80s) that brokerages have been notoriously quick to issue buy recommendations and equally slow to give sell recommendations. They make their money on commissions and can't make much money telling people to sell stock. That would assume (barring a short-seller) that the clients that you gave the sell sign to were the ones who bought your buy recommendation in the first place. Everyone's a potential
sucker beneficiary of a buy recommendation. Add that to the fact that the investment bankers want to do underwriting business (being the middle-man for their new stock and bond offerings) with companies, and thus erring on the Pollyanna side will avoid getting a CFO POed and thus losing an IPO.
I'm always a bit skeptical about Democratic state AGs, since they have a nasty twelvedency tendency to want to be Ralph Nader Jr. and do some serious corporate-bashing in the name of consumer protection. Elliot Spitzer, the New York state AG, has got Merrill Lynch to try and clean up its act. Merrell insiders were stating in internal e-mails that a lot of their buy recommendations were suitable for use as fertilizer. As part of the agreement, Merrill Lynch will mention in their stock analysis if they have underwriting business with the company.
Spitzer's right on this one, such reforms are well overdue. However, he'll likely use this and comparable agreements with other brokerages to justify the rest of his liberal agenda. I feel like my Reagan-bashing friend Dave when he didn't like the invasion of Grenada. He supported getting rid of the Marxist thugs who had taken over, but didn't like it since "it made Reagan look good." I've got much the same feeling about Spitzer; it's a fair case but makes a member of the Dark Side look good. I had to wince at the NPR piece this morning, where they stated that Spitzer was "shocked" at Merrill's behavior. Either Spitzer's clueless (you usually don't get to be state AG and be that dumb) or he's just pinned the claudometer with a classic bit of demagoguery.
Keep an eye on this guy. After his run-ins with crisis pregnancy centers earlier this year, I want to put my New York blogmates on alert to keep this guy in check.
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