The issue is simple. Under new rules put in place this year, stock analysts must disclose their own and their firms' conflicts of interests in their reports. Now the regulators are trying to close a loophole: talking to the press is just another way of making research available to the public, so the same disclosure rules apply. The regulators are now saying that if a particular newspaper won't print the disclosures, then the analyst can't talk to that newspaper. Is that so different than saying that if a particular printer of research reports refuses to print the disclosures in the footnotes, the analyst has to find another printer?

But to the media it's nothing less than an assault on the First Amendment. The New York Times' Floyd Norris broke the story on Friday with an apoplectic column, writing "If a newspaper won't print information that the New York Stock Exchange thinks investors should know, then perhaps that paper's reporters should not be allowed to talk to analysts. … Might the Food and Drug Administration order pharmaceutical companies not to talk to reporters who mention drugs without disclosing all side effects?"

For the media, when it comes to the type of regulation that they always urge on everyone else, it's "not in my backyard!" Their protests sound positively libertarian. According to a New York Times story on Saturday, Dow Jones said in a statement, "… decisions as to what information to include in articles lie with reporters and editors." The New York Times Company said in a statement, "The governmental regulation proposed here would prohibit analysts from speaking to reporters, thereby decreasing the flow of information to the public." A Forbes editor calls it "utterly threatening." A lawyer is quoted as saying, "It should be the newspaper's editorial discretion as to what is important for its readers."

So when you’re an analyst for an investment bank you've got to have regulators telling you how to manage the "flow of information to the public" and "what is important" for your readers -- the First Amendment doesn't apply to you. But put all the same stuff in a newspaper and there's no problem -- just wrap yourself in the Constitution and have at it. Sounds a lot like the campaign finance reform laws that the media love so much. Candidates and special interest groups should be limited in how they can talk to the voters, but there can be no restrictions on what the editorial pages of America's newspapers can say.

The regulators are already beginning to cave. According to an article in today's Wall Street Journal, an NASD spokesman is saying, "After receiving some complaints and looking at the original language, we realize we probably didn't get it quite right... We're going to amend our rule filing to make it clear that while we want our analysts to make disclosures, we're going to leave it up to the media outlets to decide whether to use the disclosures or not, [and] we aren't going to tell our members who they should or shouldn't be talking to."

Smart move, probably -- another case of that practical wisdom that a former colleague once summed up as "never get in a fight with a guy who buys his ink by the barrel." And if this particular ink-flinging fest results in one less regulation on commercial speech, I'll be a happy guy. But it's galling. The media are the same guys who have been the cheerleaders for regulatory encroachment in capital markets all year, fanning the flames of a post-Enron rule-making frenzy. Now, they are using the same ink they used to force regulation on others to keep regulation from being applied to themselves.

Posted by Donald L. Luskin at 3:35 AM | link