More Financial Industry Shenanigans

Today’s Wall Street Journal has a fascinating article entitled, “Beware of ‘Independent’ Investing Research.”  The story demonstrates the increasingly intimate relationship between the financial services industry and financial academia.  Wall Streeters are sponsoring university ‘research’ that, not surprisingly, supports particular products that they are attempting to sell to consumers.

Criticisms raised in the article include:

• The nature of the relationship between the Wall Street institution and the academic institution is often not disclosed, and when it is disclosed it is in small, difficult to read print.

• Academic institutions and their professors rely upon corporate sponsorship for their programs, an obvious conflict of interest.  The justification for the buddy-buddy relationship is a good one: academics are often accused of not being close enough to the ‘real’ world.  However, listen to this casual dismissal from an academic where a conflict of interest is apparent: “The connection to business is desirable.  I don’t think we want to sever that on the altar of conflict of interest.”

• Academia has supported some of the industry’s most controversial products, including sub-prime mortgages and derivatives.

One of my main concerns is that even if a professor maintains the right of creating an objective report and is indifferent to her/his institution being given $50,000 for research, isn’t it understood that future ‘research’ dollars will only be forthcoming if the professor agrees with the point of view of the institution sponsoring the research?

Another of my concerns is that academics have demonstrated over and over again that the overwhelming majority of people in the Western world can most effectively be incentivized financially.  Yet, they seem to hold themselves out as the sole exception to the nearly certain relationship of better work for better pay.  C’mon!

But my biggest concern is that consumers are only ever likely to see the research that affirms the position of the firm trying to sell you its product.  Assuming the academics are correct and they can maintain their objectivity and actually publish a negative report, then why aren’t those sent out with product marketing materials?  Isn’t it friggin’ obvious?

My friends, the financial industry’s corruption runs deep.  Remember this as you live your lives.  The financial industry will likely always need a heavy regulatory hand to stem abuses and outright corruption.

Jason