Business Ethics Essay
The truth that was represented by analysts in Wall Street were not to be trusted even after they are heavily regulated as of now. The previous influx of first investors around the year 2000 made it a very ripe opportunity for analysts to be heralding great ratings for companies that are paying them in some form. The public is misled by supposedly “experts” on the topic of researching the profitability of public companies. Since analysts either own shares of the companies they are promoting or receiving commissions from executives of these companies.
They are no different from simple hawkers trying to convince you of the quality of their goods. Analysis The situation came about because regulators, namely the SEC, did not have enough pressure exerted on public companies to not mislead the rest of the public with their fake bullish reports all the time, (Morgenson 2002). The rules were not clear and the regulators were not vigilant enough. They let the analysts proclaim whatever they want to the gullible public even though the claims are obviously impossible for those with even average financial knowledge.
It was only later when the rest of the market finally came crashing down that the regulators realized
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This problem only covers the truth and disclosure aspect of the problem. The main reason why analysts were not immune to the influence of the big companies that are in the stock market is because they are also people who need a steady income. Since they are prone to manipulation and threat, it is imperative indeed that SEC and other government agencies find something to allow these analysts to earn a living without depending on the companies they are covering in their reports.
There is also the angle that people seek anyone who they perceive to have better knowledge than their selves and entrust their future on the recommendations of such individuals. This is why the government should create an environment where untainted financial advice can be given to the rest of the public since it serves the whole population. Another problem that happened in those days and still is happening even today, is insider trading. The ones selling the stock recommendation to clients are sometimes also the same people that are controlling it and owning it sometimes.
Since they have information on what investors are planning to do with a certain stock, they can certainly take advantage of this information and either buy more or short a certain stock and make their profits. This is just one form of insider trading. Another more insidious form of insider trading is in the hands of company executives who have access to very critical and important company information. They are in a position to be able to judge effectively whether or not their company will be profitable in the near future.
Accordingly, they are also able to judge best whether they should short the stock positions they own or buy some more of the shares. Conclusion The financial industry is rife with potentials for abuse that is why investors and regulators have to be very vigilant with possible signs that they are being manipulated by unscrupulous individuals looking to make a quick buck out of anyone who is not financially savvy enough. People are looking up to financial analysts to do the technical work for them.
Trust is paramount into this relationship, (Revsine 2004). If only a person is already financially savvy, then they would not have any need for finance analysts. They have no need to fear any recommendation that might be tainted with commercial interests. Since not everyone has skills and knowledge like this, the next best thing to do is to ensure that the ones making the recommendations are not influenced by the companies that they are rating. The steps made by the SEC lately are sound and reflective of the previous financial disaster’s root causes.
The conflicting interests of analysts with the companies they are recommending and downgrading should be open to all to ensure fair assessment of investors of their potential personal interests. Whether the investor will buy the share recommended after a full disclosure would now be totally a fully informed decision. Even if investors are not financially savvy, they can now at least have the grounds on whether to trust the speeches made by any finance analyst.
It is only insider trading that is harder to catch from a regulators point of view since they do not need to deal with the rest of the public. The information connections of any executive can be unknown to many. Even a person who is not an executive in a certain company might have access to very private information by virtue of their personal networks. This aspect makes it very hard to regulate. If there is a positive side on this, at least it does not involve the rest of the general public.
Ultimately, it all boils down to the point of getting to trust someone you think has more financial knowledge. As investors learned the hard way, sometimes the technical knowledge on investing is far less important than the character of the person you are dealing with. Bibliography: Morgenson, (2002), “Corporate conduct”, New York Times http://www. nytimes. com/2002/12/20/business/corporate-conduct-news-analysis-accord-highlights-wall-st-failures. html? pagewanted=1 Revsine, (2004), “Financial Analysis and Reporting”