Volume CCXXXII, Number 23 July, 2002 Page 4

No winnings, sir!

SPITZER SHOCKED TO DISCOVER GAMBLING IS GOING ON IN N.Y.C.

Former investors in Infospace wonder what they're going to get out of the Merrill settlement.

By Samuel Insull
Financial Editor

It's hard to know who to root for (or against) in the recently concluded sellout [Surely, settlement? -- Ed.] between New York's Attorney General, Eliot Spitzer, and Merrill Lynch.

Merrill, of course, stood accused of providing its customers with research that was produced, not with the Olympian detachment suckers have a right to expect, but in the hope of selling something to somebody. It could be unloading the wallpaper on rubes, but more likely it was sucking up to company management to earn lush fees on the next floatation or even better on a merger cunningly designed to capture the synergies between e-commerce and hog butchery. It turns out that Merrill is in business to sell people things they might not otherwise buy, like watered stock or MCI. That's why they call it "sell-side" research.

Against this Wall Street colossus stood plucky Eliot Spitzer, who bought his current job with the dough his daddy earned in that notoriously honest and upright business, New York commercial real estate. (Not that dispatching Dennis Vacco back to Cattaraugus County wasn't a good deed.) He got his 100 million column inches [Surely, settlement, again? -- Ed.] and an ironclad commitment from Merrill Lynch to obey the new NASD rules when as and if they take effect. Talk about a hard bargain

And what of those innocent customers themselves, who were just about to place their rent money in government bonds when greedy brokers yanked their wallets out of their pockets to get in on the 97th floor of the eDrek IPO? Sure. No con works without marks stupid and greedy enough to believe that their six-month return of 145% resulted from their investment genius, not an unsustainable bubble. They could have paid a few bucks for Sanford Bernstein research, or even hiked over to the public library to parse the Value Line, but those savants weren't too high on Void.com.

Having fallen for the bull-market hysteria, the poorer but no wiser "investors" are now loitering around ambulances hoping that a strike lawyer will lead them down the newest path to ill-gotten gains: suing Merrill Lynch. Since the settlement was not in fact an admission by Merrill, said plaintiffs and their barracudas will have to plead and prove securities fraud to get back to even. But what am I thinking? Look for a global settlement with all the Wall Street firms, pursuant to which the plaintiffs' lawyers devour $350 million in fees and their clients get coupons good for 10% off their next IPO purchase. It worked for cars and computers.

What we've got here is a classic Wall Street story, in which greed, sloth and incompetence emerge, as always, triumphant. If you want heroes, you'll have to cough up your last ten-spot for Spider-Man. It does bring back to this old investor that famous Wall Street adage: bulls can make money, bears can make money, but as for the sheep, they get slaughtered. If they're lucky.

CHECKING OUT OF THE ALAN DERSHOWITZ CENTER FOR THE OVEREXPOSED:

Bill Weld
Paula Jones
Michael Richards
Karen Hughes
Ken Starr
Jennifer Love Hewitt

CHECKING IN:

Calista Flockhart
Gwyneth Paltrow
Phil and Wendy Gramm
Michael Jordan
Condoleeza Rice
Ashleigh Banfield

It's a good thing all that greed, fraud and shameless self-interest on Wall Street hasn't reached Washington

The Spy's ace Capitol Hill correspondent, Bobby Baker, reports on efforts to repeal the billionaire wealth tax

    As we all know, war means sacrifice. So it's no surprise that spending on the military doodads like missile defense and Stealth fighters that did such a crackerjack job of protecting us from terrorism has to take precedence over pointless fripperies like health care for children and poor people.

    Fortunately, though, for the five or ten thousand richest Americans, the Bush Administration and the scorched-earth Republicans have found a few hundred billion dollars in the budget to repeal the U.S. estate tax. For 99% of us, this is not big news, because we're not likely to inherit estates worth over $675,000 today or $3.5 million in 2009.

    But some of George Bush's investors don't see why Uncle Sam should have any claim on their ability to seamlessly transfer their treasure to their no-doubt deserving offspring. House Republicans lament, in voices piteous enough to cause the stones themselves to cry, the tragic, not to say immoral, consequences of taxing heirs on money they didn't earn.

    Bring out your hankies for a typical example of Republican lamentation, this one from the undoubtedly Hon. Scott McGinnis of Colorado: "How can you in a democratic society that practices capitalism, how can you justify a tax based solely on the fact that you have died on property that you have already paid taxes upon? How can you do that? You cannot justify it." Unless of course you needed the $50 billion to $70 billion estimated annual revenue to fight terrorism or pay Social Security benefits.

    "Let me jump in here and read some letters to you. Again, I do not speak from written notes." You'd never guess. "These are actual letters that I have received in regards to this terrible death tax and what it does. These people feel like they have been fooled, that the death tax goes away in 2010 and then it leaps from the grave, as the Wall Street Journal puts it, leaps from the grave the next year. By the way, any of you that cannot afford life insurance, whose family will be devastated by the death tax, look, do not die until 2010." Of course, if you're one of the 40,000,000 Americans without health insurance, you could die well before 2010. This would, however, not concern Rep. McInnis, since those unfortunates will not likely leave behind a taxable estate.

    Rep. McInnis, speaking as he was entirely extemporaneously and undoubtedly without talking points supplied by Tom "the Exterminator" Delay, apparently forgot why the estate tax repeal goes six feet under in 2010. This same gang assured us last year that we could "afford" their 10-year tax cut because it used up only one-quarter of their inflated surplus estimates. Since we couldn't afford years 11 and later, the Republican tax cut legislation restored all taxes to 2001 levels. Gee, you don't think they intended to come back the following year whining about tax "increases" in 2011 that required busting the budget today? No wonder his constituents feel that they've been fooled.