Washington Post columnist Steven Pearlstein was online to talk about today's column, in which he says it has become clear how thoroughly kickbacks are larded through the economy, often under arrangements that purport to get the best deal for consumers. A transcript follows.
About Pearlstein
Steven Pearlstein writes about business and the economy for The Washington Post. His columns on the economy appear every Wednesday and Friday.
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Laurel, Md.:
I was reading just recently one of those skeptical stock market books that have proliferated since 2000. One of its chapters details how stock brokers work, and points out that they are sales(wo)men, pure and simple. The major difference is that brokers do not have a fiduciary responsibility to their clients; in essence, a pledge to put the clients interests first, as doctors, lawyers and bankers do. For instance, a lawyer can't ethically advise going to trial because it would generate extra fees.
Just like investment magazines can't headline every issue "Index Funds best vehicle again this month," brokers have to come up with new products to sell and reasons for clients to buy them. Unfortunately, as the informed clients have wised up, they're increasingly chasing the customers with more money than knowledge.
Steven Pearlstein: Lots of good points there. You've taken a somewhat legalistic approach, asking if we should infuse these jobs with some sort of fiduciary responsibility. That could be a slippery slope legally, but it certainly gets to where I was suggesting. But I'm not sure we have to go that far. What about a contract that says that the broker/agent has an obligation not only to disclose any additional compensation, direct or indirect, relating to this engagement and that he/she will rebate it to the customer upon receipt? Of course, the insurance agents have anticipated just such a setup and made it illegal, under state anti-rebate laws designed to prevent price competition in agent fees and commissions. The only state that doesn't such a law is California, and then only because it was nullified by a referendum that broke the political chokehold the insurance agents had on the legislature.
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Alexandria, Va.:
Seems like you're wringing your hands over a practice that's probably as old as the oldest profession...
Steven Pearlstein: No, I think the world's oldest profession is more straightforward than that, actually (from what I hear, of course).
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Steven Pearlstein: Well, this apparently was not the hot topic of the day. Can't win 'em all. See you next week.
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