The Chinese Wall Is Here To Protect You.

The idea of the “Chinese Wall” on Wall Street is to silo the efforts & information being used among the various money making endeavors of a financial institution. Because banks can do “everything” now, the Chinese Wall is a way, a great way, of avoiding conflict of interest problems.

For those of you who might forget your history (after all, it was a whole 12 years ago), this latest wave of Wall Building occurred in the wake of the Dotbomb era, when investment bankers would wink & nudge analysts to bump up a target price and expectations, so their advisors could sell more product which directly involved or held much the same names the analysts and banksters were pimping pumping objectively researching.

And clearly we learned our lesson. Now research reports (that aren’t actually research reports) have miles of Chinese Wall disclosures designed to contain any fallout from the onslaught of greedy attorneys & bitter investors who must be confused about the protection the wall actually provided.  Let me remind you, bankers & analysts are now housed in impenetrable fortresses (i.e., completely different rooms).

Forget the fact that much of the actual Great Wall of China itself is in a state of disrepair after years of neglect and general wear. Or that a million people died building early versions of the wall. Or that the Wall itself went through at least four iterations before it was considered done; and even then, it was still eventually breached in battle. Let’s forget all of that, and continue to hold onto the quaint Norman Rockwell folksy idyllic picture in our mind that these Chinese Walls we’ve created will be timeless and enduring, and will always, in fact, protect the interests of Mr. & Mrs. Main Street investor. See, don’t you feel a little better now? It’s all solved. You see, Sarbane Oxley has a rule specifically about this conflict of interest stuff — with tons of disclosure rules. So, please… rest your weary soul.

Take comfort in headlines like this, “Returns Now Rule At Morgan Stanley”. And ignore obvious anti-banking propaganda from the Wall Street Journal dribbling this tripe on its site:

U.S. mutual funds run by Morgan Stanley, the lead underwriter in Facebook Inc.’s $16 billion initial public offering, have disproportionately high investments in the social-media company, leaving fund shareholders exposed to the stock’s big drop since its May 18 IPO.

New data show that eight of the top nine U.S. mutual funds with Facebook shares as a percentage of total assets are run by Morgan Stanley’s asset-management arm, according to fund tracker Morningstar Inc.

…So, keep your money in the mega-banks. Keep your money with that very nice bank advisor, selling you very nice funds. The Chinese Wall is here to protect you.

Read More:

A Reminder: This Research Report Is Not Research — IHWS 

Returns Now Rule At Morgan Stanley — Wealth Management 

Morgan Stanley Funds in Big Facebook Bet — WSJ 






2 thoughts on “The Chinese Wall Is Here To Protect You.

  1. Pingback: Friday links: best interests | Abnormal Returns

  2. Jeremy L. Bartell

    Funny article, especially this: “Let me remind you, bankers & analysts are now housed in impenetrable fortresses (i.e., completely different rooms).” On great walls, have you read about the highly amusing lack of a chinese wall at Rodman & Renshaw LLC? If not here’s our take on it: Finra Sanctions Research Analyst Who Wanted Only to Be Loved. http://wp.me/p1PsM6-kK

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