Dot-Com Conflict-of-Interest Poster Girl Mary Meeker Warns America: Think of the Children and Cut Social Security!
This is great. Mary Meeker has a report out called USA Inc, telling us all why Social Security benefits should be cut for the good of America. “By 2037, cumulative deficits from Social Security could add another $11.6 trillion to the public debt,” warns the cautious and prudent-sounding Meeker.
Among her heart-wrenching conclusions:
The sovereign credit issues in Europe suggest what might lie ahead for USA Inc. shareholders – and our children.
Because that’s what we really need. Mary Meeker re-inventing herself as a bosom-clutching family values troll as she puts her stamp of approval on the Pete Peterson Simpson-Bowles report, recommending belt-tightening to the middle class as a way to pay for the tabs she and her fellow feudal financial overlords saddled us with.
I’ll leave it to the wonks to rip apart her latest bag o’ bullshit and her hallmark brand of fact-stuffing, but in case anyone has forgotten about the role Meeker played in the dot-com boom, let me remind you.
Remember when the internet bubble was growing like gangbusters, and there was that little problem of no firewall between the analysts and the investment bankers in the big Wall Street firms? And how analysts were keeping their ratings of big internet stocks high long after they knew they were vastly over-inflated, and engaging in practices that stoked the profits of their firms while trying to pass themselves off to the public as “objective analysts?” You may have even lost some money yourself taking their advice.
Well, Mary Meeker was one of those analysts. In fact, she was the queen. Here’s John Cassidy’s 1999 New Yorker article on Meeker, entitled The Woman in the Bubble: How Mary Meeker helps Internet entrepreneurs become very, very rich (PDF). And according to Fortune in 2001, Meeker was the poster girl for conflict-of-interest in the dot com era:
Today Meeker, 41, has become something else entirely: the single most powerful symbol of how Wall Street can lead investors astray. For the past year, as Internet stocks have crumbled and entire companies have vaporized, Meeker has maintained the same upbeat ratings on her companies that characterized her research reports in the glory days. For instance, of the 15 stocks Meeker currently covers, she has a strong buy or an outperform rating on all but two. Among the stocks she has never downgraded are Priceline, Amazon, Yahoo, and FreeMarkets–all of which have declined between 85% and 97% from their peak. For this she has been duly pummeled in the press, accused of cheerleading for Morgan Stanley’s investment banking clients.
But Meeker’s refusal to downgrade her stocks is only a small piece of a bigger story. This larger story is about how a smart, hard-working analyst became a big part of the world she covered. Meeker came to see herself not merely as an analyst but as a player–a power broker, a dealmaker, a force to be reckoned with. She was a true Internet insider–and other Internet insiders, most of whom were her friends, shared this exalted view of her. “I don’t think of Mary as an analyst,” says venture capitalist John Doerr. “I think of her as a service provider for investors, entrepreneurs, and management teams.” As a result Meeker did things that utterly compromised her as a stock picker.
Morgan Stanley was investigated by then-New York Attorney General in 2002 for their practices during the boom. They settled in 2003, but the AG report is an eye-opener about the extent of Meeker’s conflicts of interest as an objective “analyst.” From page 14 and 15 of the report:
32. One senior analyst’s involvement in the investment banking activities was such that several investment bankers inthe firm regarded the analyst as tantamount to an investment banker. One banker wrote that the analyst was the most committed and focused banker with whom he had ever worked. (Exhibit 32.) Another wrote that the analyst was a “commercial animal” who would do anything appropriate to win underwriting mandates. (Exhibit 32.) The analyst’s supervisor wrote in 1999 that the analyst’s focus was primarily on banking and that notwithstanding the growing demand for the analyst’s time on investment banking matters, the analyst needed to devote more attentoin to institutional investors and the firm’s institutional sales force.
Not conflict-of-interest-y enough for you? Now how much would you pay:
32. The analyst’s own self-evaluation prominently mentioned the analyst’s assistance to investment banking in selecting and generating investment banking business nd large fees, stating: “Bottom line, my highest and best use is to help MSDW win the best Internet IPO mandates (and to ensure that we have the appropriate analysts and bankers to serve the companies well)….” (Exhibit 33 at MS0083161, emphasis in original.) It also prominently listed the deals and revenues from the analyst’s invstment-banking connected efforts:
Internet Investment Banking, a Record Year with $205MM+ YTD Revenue, [20+] Pending Financings, Co-Coverage (Leverage) in 85% of Cases, 6 of 6 Tech IBD Revenue Generating Clients, Internet Category was #1 Revenue Generator in Tech IBD ($505MM YTD Tech Reenue)…(Emphasis in original.)
OK, the numbers (see Attachment A): Forty investment banking transactions ($143MM in fees)….
It’s notable that 96% of the $205MM in revenue was derived from clients to the firm since 1995! Exceptions were America Online, Compaq, Hearst and Sotheby’s. And I hve been very involved in this business. (Emphasis added.) (Exhibit 33 at MS0083162-63.)
The analyst, of course, was Mary Meeker, as can be seen in the Attorney General’s attached exhibits.
So when I’m greeted with something described as “Mary Meeker’s Brilliant, Tech-Centered Turnaround Plan for USA Inc,” you’ll pardon me if the first thing I want to know is “how do Meeker and her clients stand to get rich off of this.”