Times of upheaval and dynamic change leave their landscape strewn with living contradictions. These contradictions bear witness to a progress that is yet incomplete, that bestrides both the world as it has been, and what it will shortly become. In the yawning gap lie strange juxtapositions -- like TheNew York Times continuing to embrace, while still infrequently slapping the hands of, Wall Street analysts.
You've heard of these analysts, right? The so-called sell-siders whose recommendations make money two ways, both as (1) catalysts to spur trading in customer brokerage accounts while at the same time (2) pleasing corporate clients from whom investment banks extract millions in fees. Oh, and you've heard of TheNew York Times too, yes? The Times is considered a credible source, often self-identified or nationally praised as the most credible source, telling you it's "all the news that's fit to print," that (in its new marketing tag) you should "Expect the World."
If you're an investor, though, don't.
In fact: Excelsior. Aim higher.
Is it the Times's flawed analysis I'm talking about? Not really -- it doesn't feature any more than any other source, and often a lot less. The Times certainly doesn't need me to recommend its paper's many good features and writers (including good work in the business section from writers like Floyd Norris and Gretchen Morgenson).
Is it the Times's politicized editorial page, pushing opinions within a paper that otherwise offers supposedly "objective" reporting? C'mon now, no conflict there, everyone's doing it, right? Plus, you believed anything in this world is objective?
No, I write of the Times's reliance on Wall Street analysts to provide almost all the opinions, quotations, and color commentary in its business stories. We live in an age where, increasingly, any enlightened viewpoint on the stock market now recognizes clear conflicts of interest when Wall Street investment banks try to do company analysis right alongside their lucrative primary business of company financings. The Times itself has contributed to this enlightenment, with editorials like this one (free registration required), mentioning that "Merrill analysts routinely dismissed stocks recommended by the firm as 'a powder keg,' 'a piece of junk,' or worse" (italics mine).
And yet, in a juxtaposition almost as bizarre as the pairing of Martha Stewart and rapper Busta Rhymes at the MTV awards a few years back, right alongside these critiques the Times business section continues to serve up to its readers conflicted Wall Street analysis in large dollops as its analysis of choice, on whatever is the biz topic du jour.
Take last week's article on biotech concern Human Genome Sciences (Nadaq: HGSI). (I came across this because we own some shares of that beleaguered company in our Rule Breaker Portfolio, but Human Genome Sciences has nothing to do with my point.) Just read down the article and you'll find, in typical fashion, three outside expert opinions sought -- all of them investment bank analysts:
The New York Times's Ad Hoc Panel of Biotech Experts
Jim Reddoch, an analyst with Banc of America Securities
Jonathan Ashcoff, an analyst with Friedman, Billings, Ramsey
Joseph Dougherty, an analyst with Lehman Brothers
Conscious or not is a good question, but what's not in dispute is this constant choice by the paper to offer views through a monochromatic lens. It's the business world as seen by Wall Street analysts -- who flock like geese, as numerous studies have shown -- and this view of the business world will run almost comically alongside other articles featuring hard-hitting jabs at these analysts' firms, jabs indirectly targeted at these selfsame analysts!
In one of those "it would be really funny if it weren't so sad" juxtapositions, right near the Human Genome Sciences article, the Times's website featured an article detailing the crusade of New York State Attorney General Eliot Spitzer to hold Merrill Lynch and other firms accountable for consistently providing financial advice that served their business interests at the expense of their own consumer clients -- y'know, at the expense of poor suckers like you and me, some of whom were (of all things!) actually using the advice (Bill Mann covers this story in a recent Fool on the Hill column). As of last check, the Associated Press was reporting that Merrill Lynch was preparing to part with something on the order of $100 million to settle this lawsuit out of court. And yet you're just as likely to flip past that article onto the next page, where the Times, without a hint of irony, will be quoting... a Merrill Lynch analyst.
This situation probably can't last, but it's funny while it lasts. I mean, can you imagine being the CEO of one of these Manhattan investment banks? You'd be hooting! Could you plausibly have this particular paper any more thoroughly in your back pocket? Sure, some lone journalist once a week skewers you with an editorial accurately detailing your firm's numerous conflicts of interest so heinous that they have resulted in millions of customers losing money by following the advice given to them.... OK, so what?
The other six days of the week -- there they go again -- your friends over at the "objective" Times turn to YOUR firm's analyst for analysis and expert insight! With every passing reference, every quotation, The New York Times bolsters the reputations of your analyst, your firm, your way of doing business. Your business essentially is reputation, and since on a daily basis the paper is holding up your analysts' opinions as worthy, your reputation is being made by your pals over at 229 West 43rd Street.
Who popularized Merrill Lynch analyst Henry Blodget? Like any other Wall Street analyst over the years, Henry Blodget was a fabrication of the news media, which quoted his ever-changing opinions in lurid headlines over the years. Again, without noting the irony, these same news media now seek in their editorials to report on his, and his company's, demise. Oh, so now we read about the conflicts of interest. Now we read about Merrill Lynch internal memos showing Blodget disassociating himself from the companies he was recommending. Now we read these things and more, all right alongside some other article on the same newspaper page vouchsafing us the insights of some other, new, equally conflicted Wall Street analyst.
Whether it knows or not, The New York Times is functioning as these investment banks' secret weapon. They are harnessing the high reputation the paper has previously enjoyed for putting out credible journalism, harnessing it to benefit their investment bank as they continue to advertise (through that paper and other media sources) what great consumer financial advice they provide.
Wouldn't you be hooting if you were running one of these banks?
But perhaps this is all just sour grapes. Working as I do for a financial media company, The Motley Fool, I know that despite our growing voice we're still an upstart relative to these decades-old players. The public hasn't been "trained" enough yet by the news media to ask for -- nay, insist upon -- independent commentary. So our own talented in-house biotech analyst, Tom Jacobs, wasn't called for a quote for the Human Genome Sciences article -- or for any other article so far in The New York Times. Also, our syndicated column is printed in almost all the major newspapers in this country except for The New York Times... so yeah, I'm probably just bitter. Hey, it's the Times's decision, and more power to it to run its business the way it wants.
But each of us also has a choice about where to go for useful and helpful financial reporting. We seek advice and guidance from the things we read prior to making business or trading decisions. And I sense that the longer the Times and others hold to their Wall-Street-happy approach, the less relevant and less credible they will become. The lens of history and hindsight will not present a very pretty picture of these activities. In fact, I think it's going to look pretty embarrassing.
In the end, these criticisms are not appropriate for The New York Times, solely. What I've described happens many places, besides. But I think it's fair to ask a little more of a paper with an illustrious history of setting and achieving high standards (and one that hasn't ever been too shy of letting you know that).
As The New York Times tells us to "Expect the World," it instead delivers to the world articles that continuously parrot investment and business commentary put forth by... investment banks.
If that doesn't make you either shake your head or blench, reread that sentence.
David Gardner is co-founder of The Motley Fool, a leader of independent financial advice. He would love for you to share your comments on this article with him or with The New York Times. The Motley Fool has a full disclosure policy.
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