The Naparstek Post

11 notes

Research is a Wall Street product. Back in the days of the dot-com bust, the charge was that this product was worthless – designed to sell shares, not provide a true picture of the health of companies or the likely prospects of making money by investing. The charge in the Facebook case is that the research is valuable – and therefore should have been made generally available, not only to select clients. The logical end-point of this kind of reasoning is that the Wall Street houses shouldn’t provide research – they should just offer product and let the clients decide what they want to buy, without “selling” it on the merits. Except this is exactly what the major Wall Street houses did with the mortgage-backed CDOs and other structured products that destroyed the world economy. And they have been criticized for that as well.

All of this rumination is not intended to serve as a defense of Wall Street’s practices. It’s intended to argue that trying to insure that information disseminated by Wall Street is both accurate and generally available is a fool’s errand. Accurate information is valuable, and therefore expensive. You can police the margins – and those margins may well have been crossed in this case – but the problem in intrinsic to the fact that information asymmetries arise naturally all the time, and information asymmetries are the main way people make money.

Ultimately, the way to make Wall Street work better for everybody is probably just to tax it more heavily.