The Securities and Exchange Commission issued tougher guidelines on the use of so-called soft dollars yesterday, limiting the kinds of services money managers can buy by paying brokerage firms inflated trading commissions and passing on the higher costs to clients.

The commission voted 5-0 to disallow the purchase of computer equipment and office furniture with soft dollars. Commissioners said they might also consider tightening rules on how money managers record soft-dollar expenses and disclose them to customers.

Soft dollars are controversial because they reduce investors’ returns.

How can you be the most powerful media force in the world's financial capital and not know that the commissions a client pays to a broker are for both research and trade execution, that trade execution is continuing to fall in cost due to technology and competition and that research, if it's good, is all about growing investor returns? (If that research is wrong, of course, you lose money.)

Wait, perhaps it's because the NYT writers insulate themselves from the infections of facts? Or is it the protective shield of ideology? No, much simpler: the NYT hates the twin ideas of republican democracy and capitalism. Anything which enhances either, must be distorted and killed.

Yesterday, the SEC voted 5-0 to preserve the policy allowing brokers to use client commissions to pay for research and brokerage services and only those services. Each of the five SEC Commissioners praised the quality and inventiveness of independent research, saying explicitly independent research deserved equal regulatory treatment to the research of the big integrated firms.

This is hardly an issue to interest the average, or even well above average investor, but it's a lifesaver to the $1 Billion independent research and an important "GO BUY INDY RESEARCH" signal to the $8 trillion mutual fund industry and $trillion hedge fund industry.

We document market inefficiency in the in the days following the buy recommendations of Jim Cramer, host of the popular CNBC show Mad Money. The average cumulative abnormal overnight return for the smallest quartile of recommended stocks is 5.19%, and these returns completely disappear within 12 trading days. We also find that trading volume, buy-sell imbalance, and short sales volume are all significantly higher than normal on the day following Cramer's recommendations. These findings allow us to test hypotheses about the behavior of different types of traders. Finally, our GMM estimates of the components of the bid-ask spread suggest that market makers are aware of Cramer's recommendations and anticipate the order flow imbalance following Cramer's recommendations.

Negative Consequence #3: Altered Incentives and Unintended Consequences

Government programs typically alter the incentives faced by private agents and create new incentives that would not exist without government. These then lead to unintended consequences, most of them negative. Many of these, moreover, could not have been forecast at the time the policy was enacted.

In 1914, when the U.S. prohibited drugs, no one could have known the AIDS virus would emerge some 65 years later. Yet it did, and because prohibition increases the incentive to inject drugs and fosters restrictions on the sale of clean needles, many drug users share syringes and thereby contribute to the spread of HIV.

When the Supreme Court handed down its Roe v. Wade decision, many anticipated an increase in abortion utilization. Few forecast, however, the use of stem cells to develop new medical therapies and that the abortion controversy would spill over to the funding of stem cell research.

When Congress created Social Security in 1935, life expectancy was roughly 65 and many suffered significant reductions in health and productivity well before this age. So, Social Security mainly provided income to those who could not support themselves. Now, however, more and more people live past 65 in reasonable health, and this has created the expectation that everyone deserves a comfortable retirement. By itself, this is not a problem, but most people also expect taxpayers to foot the bill.

These examples are perhaps extreme. But the tendency for intervention to change incentives is pervasive. Rent control lowers the return to building apartments and therefore reduces the supply of housing. The Endangered Species Act encourages pre-emptive destruction of habits that might contain endangered species. Anti-discrimination laws encourage firms to avoid hiring members of protected groups so they cannot be sued for firing them.

All this happens because interventions change incentives, sometimes in ways that are hard to forecast. The fact that the future is uncertain is not by itself reason for inaction. But when government introduces something new, it risks setting into motion these unintended consequences. Rational evaluation should thus recognize that the devil one knows might be better than the devil one has not yet met.

A huge chunk of the Supreme Court's work lies in interpreting the statutes and regulations that govern every nook of American life. In reading statutes, the justices oscillate uneasily between two inconsistent approaches. Sometimes they distill the meaning of a disputed provision by making their best independent judgment about its structure and function. So they slap down any government officials who exceed statutory powers. Alternatively, they lament the imprecision of language, doubt their own expertise about social and political complexities, and defer to whatever reading the official gives to the statute that empowers him.

It is instructive to ask how consistently the four conservative justices -- Roberts, Scalia, Thomas and Alito -- and their four liberal colleagues -- Stevens, Souter, Ginsburg and Breyer -- apply these approaches in the battle for supremacy, with Justice Kennedy frequently the swing voter. Answer: not at all. In principle, it would nice if both sides of the ideological spectrum displayed a sound and consistent position on statutory construction. Unfortunately, each bloc is opportunistic. . The litmus test for this erratic behavior boils down to a factor not found in any statute: trust.

The court's two wings share one trait: They defer only to the government officials they trust. Otherwise, they read a statute carefully to rein in the authority of officials they don't trust. The two factions don't differ in their philosophy of language, or in their on-again, off-again adherence to the rule of law. Rather, the court's liberal wing profoundly distrusts this president, but has great confidence in the domestic administrative agencies that regulate matters such as the environment. The conservative wing of the court flips over. It willingly defers to the president on national security issues while looking askance at expansionist tendencies of the administrative agencies.

I caught the following headline on the death of the Enron founder: "Kenneth Lay Dead at age 64." The verb lie means to be in a horizontal position; whereas, the verb lay means to put (something) in a flat or horizontal position. Ergo, when Kenneth died, the proper headline should have read: "Kenneth Lies Dead at Age 64."

I don’t want to rain on the President’s parade... But... The President’s supply-side tax cuts have had only one conspicuously positive effect, for one conspicuous group. They’ve helped people earning over $200K a year become fabulously richer. These people do have cause to celebrate, and it’s understandable if they want to parade around in their designer clothes. The rest of us, though, are still caught in a downpour.

A Chinese court jailed a farmer who reported bird flu outbreaks to the central government to three-and-a-half years for fraud and blackmail, state media said on Tuesday.

Qiao Songju, a goose farmer in the eastern province of Jiangsu, was arrested a month after he reported bird flu outbreaks in the nearby province of Jiangsu in October, Xinhua news agency said.

Qiao had denied most, but not all, of the charges, Xinhua said, without explaining who might have been blackmailed or whether the charges were linked to his bird flu reports, which turned out to be correct.

Let's look at some numbers. Technorati shows that there are currently 555,000 posts linking to the New York Times. Nearly 800,000 posts mention the Times in one way or another. Sounds like a lot? Not if you pull back and look at the entire blogosphere. Technorati is currently tracking 2.7 billion links. What are most people actually talking about? Mostly themselves, their friends, their family and things that are more interesting to them and their daily lives than whatever we in the media choose to focus on with our limited resources and space. To use a proper head-to-head comparison with the searches above, Technorati currently shows more than 152,000,000 posts that use the word "I". So that's roughly 300 times more people talking about themselves (and the world around them) than talking about what the New York Times has written about.

An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief.