The Inevitable “Sameness” of Wall Street

Last week, in his final appearance on the television show The Colbert Report, Stephen Colbert reflected on the “sameness” of the political environment throughout the nine year term of his series. “I did more than change the world. I ‘samed’ the world,” he said. “The country isn’t so different than it was in 2005, he reminded us—we’re publicly debating torture, a Bush is running for president, and we’re sending troops into Iraq.”

Mr. Colbert could have easily extended his soliloquy to issues involving Wall Street. Two weeks ago, the government regulator FINRA fined ten banks for engaging in an illegal practice that was first exposed to the public in 1999.

What did the banks do? They utilized their (ostensibly) impartial research analysts to praise Toys ‘R’ Us in the hopes of winning an IPO stock trading contract from the retail giant. The analysts, of course, are responsible for evaluating firms in an objective manner and issuing buy, hold, or sell recommendations to the public.

Back in 1999, a Citigroup analyst named Jack Grubman was caught manipulating his recommendation of AT&T stock so that his firm could win a similar trading contract. In that particular case, though, Grubman did more than earn new business for his employer; his willingness to compromise his impartiality led to a prestigious pre-school’s “quid pro quo” decision to admit his child to its program.

Citigroup’s public embarrassment over the Grubman episode, along with regulatory reforms that were promulgated in the wake of the episode, were supposed to deter research analysts from compromising their ethical standards in the future. But today, fifteen years after the Citigroup fiasco, FINRA’s punishment of ten banks (including, ironically, Citigroup itself) illustrates that the same illegal practice plagues the industry.

Thus, as Mr. Colbert might say, the financial industry is still “saming” the world with its ethically questionable activities. Fifteen years of boom, bust, recovery, and regulation haven’t compelled the institutions to change their practices at all.