I would imagine that this article might raise some reader hackles. How could I possibly defend, or see much that is commendable, in defrocked former Merrill Lynch (NYSE:MER) Internet analyst Henry Blodget?

For those of you who have only taken the plunge in buying common stocks in the last two or three years, the name "Henry Blodget" might not register. But for anyone who either participated in, or watched with amazement, the Internet company hyper-bubble of 1999 and 2000, Blodget's name is synonymous with what amounted to a near larceny of billions of dollars of shareholder assets. Blodget came to fame in October 1998 when he put out a price target of $400 per share on Amazon.com (NASDAQ:AMZN), which at the time traded at a little more than half that amount, and sailed through his price target only weeks later. He was at Oppenheimer at the time, but his audaciousness quickly landed him at Merrill, where Blodget was expected to be a "rainmaker" for the company's investment banking efforts. In other words, Blodget's master wasn't the individual investor, it wasn't the soft science of security analysis, and it sure as hell wasn't "truth" -- it was his company's desire to attract more incredibly profitable investment banking business from Internet IPOs and secondary offerings. And for a time, Blodget was great at it.

Little did he know it then, but Blodget's role as a Pied Piper for the stock market bubble was preordained. In Maggie Mahar's book Bull!, Blodget voices amazement at John Kenneth Galbraith's explanation of how bubbles work: some new thing comes along that captures the public's imagination, people start making money at it, attracting "me-too" companies and investors, and then "someone of average intelligence is held up as a genius." At which point Blodget holds up his hand. "Hi, that was me."

He's baaaaaaaack
So when a reader alerted me to the fact that Blodget had gone from covering the Martha Stewart trial to doing general market commentary, I feared the worst. How could Henry Blodget not use a public forum to press his side of the story, the story of his victimization by the system following his humiliating fall from grace, including the government sanctions that bar him from giving investment advice for the remainder of his life. He does no such thing.

In fact I can't help but note just how honest, how shockingly earnest Blodget's writings have been since he began writing about the stock market for Slate, which is a subsidiary of Microsoft (NASDAQ:MSFT). Blodget acidly and playfully warned that participating in Google's (NASDAQ:GOOG) IPO was "gambling, not investing," and his most recent column, "The Trouble with CNBC and SmartMoney and..." is an absolute charmer. Its evisceration of the "Do Something!" mentality that financial journalism, by its need to attract viewers, almost must engender sounds almost exactly like the sort of thing we've been saying around here forever. Don't believe me? Try these columns on for size:

So, what's gotten into Henry Blodget? I suspect that it's something that's been there all along: humanity. Think about it -- Henry Blodget got in trouble with the law because he wrote messages internally at Merrill Lynch decrying the fact that he had to say nice things about washed-up overvalued piles of dreck like Infospace (NASDAQ:INSP), for fear that he would anger his true audience: the investment bankers and institutional investors who needed to win the relative performance game. But this same guy gave us clues in 1999 that he was aware of the risk of following the dot-com dollars posed to individual investors, having claimed in late 1999 that most Internet stocks were extremely expensive, and telling a CNBC audience that he wouldn't put more than 5% of a portfolio into high-risk stocks like the dot-coms. For those who were listening, Blodget had attempted, albeit meekly, to give his published analytical reports some context.

Now in his columns, Blodget is saying out loud what he only whispered in 1999 and 2000, and the market -- the part that pays any attention -- is richer for it. Blodget's coverage of the financial industry, what it is good for, and what it is not, is excellent, and his description of what "buy" means on Wall Street ought to be required reading for any individual investor who is even considering taking a brokerage report at face value. Blodget's position as a former intimate to the Wall Street game, and his current situation as someone who has very little to lose from saying things as they are, combine to make his columns simply invaluable.

(Sidebar -- Another former Wall Streeter, Andy Kessler, has a brilliant book about what went wrong in the analyst research business called Wall Street Meat, which details, among other things, the rise of both himself and Henry Blodget to prominence as analysts.)

The trouble for me here is that part of me believes that Henry Blodget ought to be in jail. He made millions of dollars doing something he knew to be corrupt. He paid a price, but not one great enough -- he got to keep millions of ill-gotten dollars. But I also believe that if Blodget deserves to be in jail, there are hundreds of people who ought to be there right beside him. Henry Blodget didn't create the corrupt quid pro quo analyst-as-investment-banking-marketer model, and he was in no way the only person to benefit from it. He was only its most recognizable face, the one for whom the fall from glory would be steepest, only because of the heights to which he had risen.

The real mystery about Henry Blodget's career as an analyst, though, is not that he put out such misinformation and poorly reasoned analysis, but why people were so willing to be misinformed. He was paid millions of dollars not so much to provide crack stock analysis, but to serve as a cheerleader, and people lapped it up. They didn't want to be told what Internet Capital Group (NASDAQ:ICGE) was worth, they wanted to be told that it was going to be substantially higher six months hence.

I can say from experience that in 1999, a cautious article about a company that had captured the fancy of the masses almost never generated dispassionate rebuttals; rather my inbox would fill with everything from "you must be short the stock" invective to threats of physical violence. People wanted to believe that they were on the road to getting rich, and they latched onto the positive vibes of Henry Blodget like soy sauce on rice. Blodget didn't make their trades for them; he didn't, in most instances, specifically lie to them. He simply said that some companies were worth a great deal more than their fundamentals warranted. Had it not been Blodget, it would most certainly have been someone else. Americans tend to laugh at people in less developed countries who believe in voodoo, curses, and other superstitions, and yet in 1999 there should be no doubt that many of the participants in the largest stock market bubble in history believed in something that was completely unsupported by reality. For a short period of time, investors believed in the magic that was emanating from Henry Blodget's keyboard.

I say this as someone who rained contempt upon Henry Blodget during that period of time: His new pursuit suits him very, very well, and I hope he continues to tell those who wish to hear it how things really work on Wall Street. That which he writes these days is a net benefit to readers.

Bill Mann does not own any company mentioned in this report. He does, however, own a dog toy emblazoned with the words "BITE ME" on it. The Motley Fool is investors writing for investors.