Byline: Peter Wilson-Smith, Editor-in-chief
The backlash against the securities industry in the US as a result of the excesses seen over the last few years is in danger of reaching hysterical proportions. The thirst for retribution is such that the number of inquiries and investigations into the industry seems to proliferate by the day. There are even turf battles developing, with the Securities and Exchange Commission and Eliot Spitzer, the New York State Attorney General, vying with each other to show who is being most zealous in sorting out conflicts and bringing the industry to book.
In Washington, lawmakers are raising the possibility of legislation to force securities firms to hive off research with a 21st century-style Glass-Steagall Act. In sum, the concept of the integrated investment bank is on the rack and no one is sure where it is all going to end.
The need for scapegoats and victims is a familiar phenomenon of financial cycles. Remember the probes and investigations that followed in the wake of the great leveraged buy-out boom during the 1980s. At first the LBOs engineered by Michael Milken were lauded by academics and bankers for transforming the competitiveness of US rustbelt industries by allowing dynamic entrepreneurs to take over giant corporations.
But as boom turned to bust and the excesses of the period came to light, there was a violent backlash. Drexel Burnham Lambert, once a respected investment bank, was one of the victims. This time round, like the 1980s, there is a fair dose of humbug and political opportunism riding on the backlash. Spitzer has honed in on Merrill Lynch because it is such a familiar name throughout the US as a result of its retail brokerage operations. It is the perfect target for an ambitious attorney general soon to fight an election, although there is no reason to suppose Merrill has behaved any worse than Goldman, Morgan Stanley, CSFB or any other big brokerage firm.
The asset management industry has unfairly attracted far less of the blame for the excesses of recent years than securities firms. …