Published on Saturday, August 8, 2009
by CommonDreams.org

Faulty Forecasting
by Ralph Nader

Companies that specialize in stock market forecasting and trading—such as Goldman Sachs, Citigroup, Morgan Stanley, and JPMorgan Chase—pay very high salaries to their employee-vendors. New York Attorney General Andrew Cuomo just released data showing that these and other large banks are giving each of their 5000 trader-forecasters bonuses of at least one million dollars.

In return, these fat cats are very frequently wrong in their recommendations and decidedly unprofessional in their fiduciary relationships with the clueless, trusting clients who rely on them. Win or lose, they get their fees.

These firms and brokers are making money largely from other people’s money—pensions, savings and investments. Overall many produce little more than gambling tips. When these moneyboys try to justify their doings as providing liquidity, hedging against risk, assembling capital for productive investment, listeners are permitted to robustly laugh. This is especially so now during Wall Street’s massive, self-inflicted financial collapse. The economy, and taxpayers, are paying for this reckless speculation.

Meanwhile, outside this paper economy, people are producing for the real economy—manufacturing, repairing and maintaining products and structures, offering needed services for consumers. These people are far lower on the income ladder. Unlike their speculating counterparts, if the workers in the real economy stayed home, the economy would stop cold.

I was rummaging recently through some old publications and randomly came across the March 24, 2008 issue of Barron’s, a leading financial weekly. Its contributors and interviewees are supposed to be among the savviest around. Here are some samples of their perspicacity.

The cover story asserts that “the financial sector’s strongest players probably don’t have further to sink, even with the ongoing pressure of negative news. Stocks of the industry’s strongest players could climb by 10% to 20% over the next year as panic recedes, earnings improve and price-to-earnings multiples expand.â€