Wall Street Settlement: Justice Avoided
There is a priori a conflict of interest between an organization that has one department that wants to make sales and another that is a disinterested assessor of facts. This conflict has led to a $1.4 billion settlement on Wall Street. The firms involved neither denied nor admitted wrongdoing as part of the settlement, but the record speaks volumes. It is not just the firms that need fixing, but rather it is the entire way Wall Street information is handled.
Independent research is the only real solution -- think-tanks that have no interest financially in whether a stock rises or falls, whether a firm profits or loses. Having a firewall between research and sales just won't do. Until that happens, exchange like these e-mails will continue: "The sales force is extremely frustrated with your research" said one sales manager according to a Reuters article. The reply included the research analyst saying he would never issue a "hold" on a stock, "[i]f there is no investment banking business to be had there."
It is an old question, Qui bono? Or in Watergate terms, if one wishes to know the truth, follow the money. There will not be the kind of openness needed in finance until some of these people are tried for their actions. If $1.4 billion is an appropriate amount for a settlement, surely someone did something wrong. Admitting, it would help restore investor confidence. Punishing, it would be even better.