The issue of independent recommendations came before the Senate Banking Committee.  The testimony of Marc Lackritz, President of the Securities Industry Association didn’t help his cause at all.  He seemed complacent in telling the committee that everyone has bad years and no one was complaining in 1999 when they were making money.  He offers three points in contrast to the flood of academic information offered by others.  One is that being wrong isn’t the same as trying hard to serve the interest of the investors.  Two is that all analysts don’t agree in the way they see the situation.  Three is even if they agree on the inside company facts, they may not agree on the micro environment in which they operate.  So there are bound to be differences.  Essentially, he took the position that analysts are going to disagree. Then he goes on to say that they can self regulate and will follow a voluntary “best practices” standard. 

On the other hand, David Tice of David Tice and Associates. He commented, “an analyst is just a banker who writes reports. No one makes a pretense that it’s independent.” He quotes Sean Ryan, a former banking analyst at Bear Stearns Co. when he explained his reasons for recommending NetBank like this: “I put a buy on it because they paid for it.” Ryan said he told clients that “we just launched coverage on NetBank because they bought it fair and square with two offerings.”  His testimony was littered with stories like this and there are plenty more available.

The result of this type of testimony and the dogged pursuit of New York State Attorney General, Elliot Spitzer, is that investment banks are in danger of killing the goose that laid the golden egg.  The settlement with the government is just the beginning as now a myriad of private lawsuits will undoubtedly be filed.  The most recent IPO’s were basically failures and the market remains very soft and leery of new issues.  I leave it up to you to decide if the leery market is right or not.