How CORRUPT is WALL STREET?

Ø Scandals in wall street → Junk-bond schemes in 1980s, the prudential Securities limited-partnership debacle in early 90s, and price fixing by Nasdaq
Ø Wall Street operates → Shady IPO allocation practices → Enron Corp’s Collapse
Ø The damage goes way beyond the tattered reputation of the firms and their beleaguered analysis
Ø The entire economy depends on the financial system → to raise and allocate capital
Ø If investors lose confidence in information → investors hesitate to put money into stocks → could deepen and prolong the bear market
Ø This condition can put a damper of economy → if company less willing or less able → to raise capital on Wall Street
Ø Wall Street → struggled with conflicts of interest
Ø Companies want high price for their stocks at IPO and low interest rates on bond → investors want Low prices and high rates
Ø Between last quarter of 1998 and first quarter of 2000 → Wall Street flooded of money during the Tech Bubble → Wall Street earned $10 Billion in fees → by raising nearly $245 Billion for 1,300 companies → many of them profitless company that later blew up
Ø Both Spitzer and SEC are seeking information → analysts’ recommendation → that can make the conflict of interest
Ø Zamansky → seen the contract → investment banks promising 3-7% of all investment banking revenues → that they help to generate → clear proof that analyst were being paid to help the firms’ banking clients, often at the expense of investors who expected objective advice
Ø Merrill Lynch facing potential fraud claims by every retail investors who purchased any stock that Blodget & Co. may have insincerely recommended
Ø Over long run → risk bigger than legal penalties → could be new restrictions that Spitzer or other place on the way investment banks do business
Ø On May the SEC → scheduled to approve a new rules forcing analysts to limit and disclose contact with investment banker collegues
Ø It was never a secret → Analysts who work at invesatment banks often work against investors
Ø Analyst spend too much time lobbying the investors → rather than crunching number → analyst get focused on saying on what they think the client want to hear to win the vote
Ø The biggest factors now contaminating the system is compensation
Ø Small Rewards → “IT WAS THE FROSTING ON THE CAKE , NOW IT IS THE CAKE!” → for fatten their wallets
Ø Behind the Scandal → These days bankers are far more focused on short-term profits than on their long-term reputation
Ø But no matter how Wall Street Shrinks → its credibility must grow again
Ø Firms have already taken some steps → such as eliminating direct reporting by analyst to investment bankers → but Wall Street and SEC still have to make enforceable code of conduct