Conflicts of Interest & Chinese Walls

Good article about the inherent conflicts of interest the various bailout manager firms — BlackRock, PIMCO, and AllianceBernstein are some examples — have due to their ordinary businesses.

The Washington Independent:

“As the Wall Street bailout nears its first anniversary, the controversy over giving public money to private banks has become public knowledge. But an equally risky aspect of the financial rescue has flown largely under the radar: the government’s reliance on private contractors – many with potentially significant conflicts of interest – to help revive the stalled economy.

The Treasury Department knows that the law firms and investment managers hired to aid its salvage effort could be influenced by their ties to bailed-out banks; in fact, the department released a rule in January aiming to mitigate the problem.

That rule, however, has raised questions from watchdogs by asking contractors to identify and police their own conflicts of interest. And a careful review of bailout hiring agreements reveals an inconsistent set of rules applied to the types of private deals that contractors can make while serving as agents of the U.S. government.”

I have a few words in the piece. Funny thing, though, they don’t usually quote my language in its “purest” form:

“The financial world often uses the anachronistic phrase “Chinese wall” – a phrase that came into wide use after the 1929 stock market crash – to describe an investment firm’s internal efforts to isolate compromising information.

To a certain extent, then, the debate over conflicts of interest at BlackRock and other firms depends on whether you believe Chinese walls can survive in the age of BlackBerries and blogs.

“Let’s be honest, it’s bullshit. They don’t exist,” Barry Ritholtz, the CEO of the independent research firm Fusion IQ and the creator of the Big Picture financial blog, said in an interview. “They’re a theoretical, abstract legal construct that looks and sounds good when you’re developing legal constructs.”

Sometimes you just have to call a spade a spade . . .

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Source:
Government Taps Bailout Contractors With Conflicts of Interest
Elana Schor
Washington Independent, 5/29/09 6:00 AM
http://washingtonindependent.com/44659/fed-taps-bailout-contractors-with-conflicts-of-interests

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