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Dot-Com Bubble Has Burst, Lunacy Continues

That almost makes the whole thing seem neat and tidy. It isn't.

Analyst 'Scandal' Update

As predicted, the herd mentality on Wall Street is causing other brokerages to follow the lead of Merrill Lynch in restricting stock ownership by analysts. Credit Suisse First Boston, under pressure for its own alleged stock-offering transgressions, issued a statement Tuesday announcing a new firmwide policy regarding analyst ownership of stocks they cover. In short, they can't. Neither can their research teammates, spouses, partners, minor children or other dependents of their households. Harsh.

CSFB jawboned about its "ongoing commitment" to independence, integrity and objectivity. That's a good shorthand way of acknowledging that independence, integrity and objectivity haven't been high on the agenda before now.

Meanwhile, yet another new study on Regulation FD (for "fair disclosure"), suggests that the much-hated regulation hasn't caused additional market volatility after all. Academics at Purdue University's Krannert Graduate School of Management and the University of Southern California's Marshall School of Business have concluded that, contrary to the conventional wisdom spewed by Reg FD's opponents, stock prices actually have been moving less after earnings announcements than before Reg FD was enacted in October. That's because the news preannouncements that diverge from Wall Street's expectations tend to send stocks toward their correct level before the actual earnings announcements.

The study was reported this week by the Dow Jones Newswires. Given that the report is an empirical look at the effects of Reg FD, it's likely to be a powerful counterbalance to the securities industry's gut feeling that Reg FD is harmful.

Finally, it's time for more hearings on this sordid subject, and once again the gubmint wants to hear from the Rep. Richard Baker, the Republican from Louisiana who chairs the House Financial Services Subcommittee on capital markets, will hold round two of its investigations into conflicts of interest between analysts and their investment banking colleagues. The hearings are scheduled for the afternoon of Tuesday, July 31, and the committee has asked me to share my thoughts.

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