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"The tension has always been how to allow analysts to say what then mean about companies while at the same time keeping the company happy so that they can earn

"The tension has always been how to allow analysts to say what then mean about companies while at the same time keeping the company happy so that they can earn investment banking fees from the same company for things like debt raises or new issues." I don't see the difficulty. It's very easy, you avoid the conflict by don't pretending to be objective in an issue where the company that pay your salary have "skin in the game". It's what people and companies do in the real world. You don't ask divorce advice to your layer if he is also your brother in law. You call an external audit for your finances, don't allow the accounting department do the auditing (and even that doesn't work). You don't ask investment advice about a company to the guys that receive periodically money from that company.

hguant 11y ago
Oh! I know about this one! So the reason why this doesn't happen the way it should - analysts being completely divorced from the "skin in the game" folks - is because there's a ton of money involved and the buy side people tend to baby deals along. My 1000 foot understanding is that companies are structured (on paper any way) such that a broker/sales guy sets up a deal, then passes it off to underwriters who take a good hard look at what's going on - basically making sure the deal is a) on the up and up and b) will preform as predicted. They rely on data from analysts. The problem is that many large banks own all the pieces - it's cheaper to have it all in house. This means the sales guy can cook something up, and follow it all the way through the pipes threatening, cajoling, and generally pushing it through. All these finance guys are rewarded for success, everyone is already biased to see the rosy side of things, and when you've got someone talking it up, it's a lot easier to ignore the bad numbers and only see the good.

hguant 11y ago

Oh! I know about this one! So the reason why this doesn't happen the way it should - analysts being completely divorced from the "skin in the game" folks - is because there's a ton of money involved and the buy side people tend to baby deals along. My 1000 foot understanding is that companies are structured (on paper any way) such that a broker/sales guy sets up a deal, then passes it off to underwriters who take a good hard look at what's going on - basically making sure the deal is a) on the up and up and b) will preform as predicted. They rely on data from analysts. The problem is that many large banks own all the pieces - it's cheaper to have it all in house. This means the sales guy can cook something up, and follow it all the way through the pipes threatening, cajoling, and generally pushing it through. All these finance guys are rewarded for success, everyone is already biased to see the rosy side of things, and when you've got someone talking it up, it's a lot easier to ignore the bad numbers and only see the good.