Posted on: Sunday, May 4, 2003

EDITORIAL
Wall Street in denial over its shoddy abuses

Ten of Wall Street's biggest brokerage firms last week finalized an agreement to pay about $1.4 billion and adopt reforms to resolve allegations that they issued biased ratings on stocks to lure investment-banking business.

The announcement of the settlement, intended to shore up investors' confidence, fell well short of that goal when the brokerage firms themselves started going public with a cynical revisionism that is likely to convince the investing public that nothing at all has changed.

An op-ed piece in the Wall Street Journal last month by the chief executive of Merrill Lynch, one of the three firms charged with outright fraud, alleged that investors had only themselves to blame for their losses, and not the bogus recommendations they had trusted.

He went on to say that regulatory attempts to remove risk from the marketplace threatened the very nature of capitalism.

Similarly, the chairman of the Securities and Exchange Commission last week sent a blistering letter to Morgan Stanley's chief executive, who had suggested that his firm's retail investors hadn't been harmed by his firm's shoddy behavior.

Investors should be outraged by this "self-denial and lack of contrition," as the New York times called it. Investors should complain to their brokers, and make them re-earn the trust they have so badly abused.

And insofar as these abuses are due to governmental cutbacks in surveillance of securities markets, in reduced scrutiny of filings and in lax enforcement of the laws, investors should demand from government not a removal of risk, but a restoration of a level playing field.