The leaking of old emails by a state attorney general has shifted the blame for the dot.com collapse away from private investors and towards Wall Street
It's astonishing how much trouble on Wall Street a state attorney general can cause when he sets his mind to it.
By leaking emails revealing that Merrill Lynch's stock analysts allowed the prospect of banking fees to cloud their judgments, and suggesting he might soon be leaking other firms' old emails as well, New York Attorney General Eliot Spitzer has started a trend.
Two states, California and New Jersey, announced their decision to follow Spitzer's lead and the Securities and Exchange Commission, previously wary of the whole subject of Wall Street stock market research, announced its own formal investigation.
We have arrived at the beginning of the end of a process that seems to be psychologically necessary after every stock market bust. Huge sums of money can't simply have been lost by greedy little investors. Someone must have taken them.
Merrill's emails provide the evidence of the crime, or at least the semblance of it. At any rate, they establish beyond a shadow of a doubt that as Henry Blodget and other Wall Street analysts promoted Internet companies, their hearts were not at every moment pure.
This bid to punish people for what they did during the dot.com boom is strange to anyone who actually witnessed it as it ignores the texture of events.
Spitzer has proved, or thinks he has proved, that Blodget plugged stocks not because he believed in them but because he was seeking to maximise his firm's investment banking fees. And that may be true.
But can he recall why investors, or, more accurately, speculators, bought a stock on Blodget's recommendation?
It wasn't because they thought Blodget had a genius for identifying fundamentally sound enterprises. Speculators thought Blodget's support for a company might trigger a speculative wave. They knew that investing in a company recommended by Henry Blodget was extremely risky. That's why they paid attention to him.
They thought he might help them make huge speculative gains, quickly and, for several years, they were right.
Now Spitzer and his followers are recasting these same speculators as investors, simple honest folk who want only to preserve their hard-earned savings. They are doing this so that they may also recast Blodget and others as the sinister folks who wronged these simple investors. The events of the recent past are being, in a sense, fictionalised.
But why? Who benefits from this false view of what occurred in the late 1990s? A few suspects:
l Eliot Spitzer. Like other politicians who have gotten their pictures in the paper for bringing financial criminals to book after a stock market bust, Spitzer will see his career prospects improve.
He will go from being an obscure attorney general who squeaked into office by a few votes to a 'man with a future'. This isn't an original career strategy in New York City. He is following directly in the footsteps of Rudolph Giuliani.
• Greedy speculators. Newly reinvented as investors done wrong, they may recover some tiny fraction of the money they lost when they bought stocks recommended by Henry Blodget. But beneath these small financial gains are bigger psychological ones.
The transformation of the dot.com bubble from an act of investor greed into an investment banking crime implies investors no longer have to take responsibility for their actions.
With the help of their lawyers, who stand to take a third off the top of any settlement, investors can now see themselves as victims of evil people with sinister motives. That's far more gratifying than feeling like a fool.
• Big Wall Street firms. Here is the most interesting beneficiary of the new interpretation of the 1990s. At the price of a few scalps, credibility will be restored to Wall Street jobs and firms that should never have enjoyed that credibility in the first place.
Merrill Lynch chief executive, David Komansky has already apologised for his firm's past behaviour, saying he was shocked to learn that, unbeknown to him, a few people at Merrill violated the firm's high standards. (Merrill Lynch is a passive minority investor in Bloom- berg, the parent company of Bloomberg News.)
The rest of Wall Street will cave into the Spitzerean view of the world. It's far easier for a big Wall Street firm to accept that it employed a few bad apples than it is to acknowledge the absurdity of its premise.
Spitzer may believe he's bringing Blodget low so the Henry Blodgets of the world will never again darken the doorstep of the American investor. But what he is really doing is helping to preserve the idea of Henry Blodget.
This is the price of treating financial folly as crime. It allows everyone to ignore the real problem.
The best possible outcome from the dot.com experience would have been for investors to acknowledge their complicity in the folly and cease to look to big Wall Street firms for financial stewardship and investment advice.
Obviously that's not going to happen. By the end of the process he triggered, Eliot Spitzer will have made certain the next Henry Blodget will enjoy as much influence as the last one.
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