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Mar 31, 1998

Judgement day

Market intermediaries are under fire

It won't be an apocalypse. And it won't be another trial by proxy card, for the last decade has already seen corporate America put through the ringer. Issues ranging from CEO pay to director independence have been dissected, catalogued and displayed for the world to see.

No, this time it's capital markets intermediaries who will have to stand up and be counted. You can't hide any longer, all you stockbrokers, investment bankers and portfolio managers. You have been too irrationally exuberant, conspicuously consuming too long, making everyone slaver with your obscene pay.

How do you justify a $25 mn bonus? Thriving businesses employing dozens of people don't make that much in years. University professors with a dozen years of training don't make that much in a lifetime. Doctors who save lives every day can't envision so many zeros.

So how can some 30-year old with a calculator and a BMW take home what amounts to the GDP of a small country while children, homeless people and honest, hardworking journalists starve on his doorstep?

And investors are more aware than ever from whose pockets that cash is ultimately extracted. They're speaking up. They're demanding justice. They're flushing wrongdoers into the open - those traders 'spinning' shares into the private accounts of prospective corporate finance customers, insider traders, Chinese Wall jumpers. SEC chairman Arthur Levitt is not alone in his alarm over company-favored analysts who trade on whispered information - 'It doesn't take Oliver Stone to imagine how that might come about.'

They'll get their comeuppance, though, sooner or later. No Wall Street lobby can protect its interests at the expense of others forever. For starters, look out soon for the SEC's sweeping 'aircraft carrier' proposal, perhaps cutting underwriters out of the loop for routine transactions. Look out for cheaper venture capital, more ways to offer stock directly to investors, even conference calls with a broader audience of media and individual investors. More transparency. More disclosure. Lower fees. Investment bankers joining the soup-line...

Of course you can't really blame any single one of those Wall Street wonder-kids for what we've lavished on them. Might as well blame someone for getting wet standing in a raging rainstorm: equity issuance last year of $102 bn, bonds worth $770 bn, worldwide M&As rising to over $1.2 trillion. Even a tiny commission on a hell of a lot is still a hell of a lot.

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