Wednesday, April 30, 2003

Remember the heady days of the stock market bubble, when it seemed that everyone on Wall Street thought that just about every stock was going up, up, up? Well, here's why it seemed like that:

In a newly disclosed tactic, Morgan Stanley and four other brokerage firms paid rivals that agreed to publish positive reports on companies whose shares Morgan and others issued to the public. This practice made it appear that a throng of believers were recommending these companies' shares.

From 1999 through 2001, for example, Morgan Stanley paid about $2.7 million to approximately 25 other investment banks for these so-called research guarantees, regulators said. Nevertheless, the firm boasted in its annual report to shareholders that it had come through investigations of analyst conflicts of interest with its "reputation for integrity" maintained.

And as for the people who thought they were now canny investors, tuning in to new financial realities:

As an analyst at Lehman Brothers told an institutional investor in an e-mail message, "well, ratings and price targets are fairly meaningless anyway," later adding, "but, yes, the `little guy' who isn't smart about the nuances may get misled, such is the nature of my business."

These tactics came to light as part of a settlement with financial regulators about the Wall Street firms' marketing tactics, and poor compliance generally with rules concerning required disclosures and insider trading.

In libertopia, of course, things would be different. There would be no regulations, no case, no settlement, and no disclosure of the tactics -- and the big banks would be able to screw investors indefinitely.


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