One of the major memes which has been created in within the collapse of the stock market, most recently so artfully depicted by John Stewart in his Daily Show skewering of CNBC, has been the issue of responsibilities of different parties, particularly on the point of investigative responsibilities. But I think that, in all of the debate, there is one major piece still missing. I would contend that we have, institutionally, created the monster of non-accountability, through use of conflict-of-interest regulations. How? Simple. Most of those ‘talking heads’ who are in the appropriate position to investigate/ expose issues in the business markets have, if anything, a negative incentive towards true investigative reporting.
Cramer and the others in his line of work are prevented, because of conflict-of-interest rules, from being shareholders in the companies which they are promoting. And certainly there is a good reason for this—because of their position of power on the airwaves, they are positioned to affect the market purely by their input. There is, however, a serious downside to this. Just thinking back to all of the clips of Cramer hyping up the stock of Bear Stearns, I couldn’t help to note that, despite the collapse of the company, Cramer had no financial losses to speak of—he gets the same paycheck whether his advice is correct or incorrect. As has been noted in numerous articles, Cramer already has his fortune secured, having cashed out of his hedge fund back in 2000. He doesn’t have any financial stake in this game.
There’s a phrase that comes to mind in all of this: Put your money where your mouth is. If you believe in something so much , then don’t just pay it lip-service, but actually stake something to it to back it up. If the Cramers and the CNBCs of the world had to, somehow, actually take a stake in their positions, I’d be willing to bet that they would be a lot more investigative in their reporting, and not just take some CEO’s opinion at face value.
Now, certainly, we can’t have those people and companies openly trading stocks, while having the ability to manipulate the market by publicly lauding or criticizing a company, but what if we instituted some of the same controls we place on our elected officers, those blind trusts, run by outside, independent persons, to remove the individual’s ability to take advantage of their powers to manipulate their portfolio?
In a situation like this, the company and its personnel would have an incentive to seriously investigate the fundamental standings and statements of corporations. If they had a horse in the race, but they didn’t know which one, or how it was being played, they would have to take a more critical stance, and look to really expose any wrong-doing. If Cramer had a significant blind trust, which may or may not have had investments in Bear Sterns or Lehman Brothers, surely he would have been much more invested in digging into those companies a lot more, rather than being a cheerleader because of his relationships with senior officials from those corporations.
Until we see a serious reform along these lines, where we force people to put up or shut up, the incentive for investigative reporting when it comes to the stock market and businesses will remain rather non-existent.