If the bankers' compensation is reasonable, considering the skill and risk involved, there can be no objection to making it known. If it is not reasonable, the investor will "strike," as investors seem to have done recently in England. Such disclosures of bankers' commissions or profits is demanded also for another reason: It will aid the investor in judging of the safety of the investment.
In the marketing of securities there are two classes of risks: One is the risk whether the banker or the corporation will find ready purchasers for the bonds or stock at the issue price; the other whether the investor will get a good article. The maker of the security and the banker are interested chiefly in getting it sold at the issue price.
The investor is interested chiefly in buying a good article. The small investor relies almost exclusively upon the banker for his knowledge and judgment as to the quality of the security; and it is this which makes his relation to the banker one of confidence. But at present, the investment banker occupies a position inconsistent with that relation.
The bankers' compensation should, of course, vary according to the risk he assumes. Where there is a large risk that the bonds or stock will not be promptly sold at the issue price, the underwriting commission that is the insurance premium should be correspondingly large.
But the banker ought not to be paid more for getting investors to assume a larger risk. In practice the banker gets the higher commission for underwriting the weaker security, on the ground that his own risk is greater.
And the weaker the security, the greater is the banker's incentive to induce his customers to relieve him. Now the law should not undertake except incidentally in connection with railroads and public-service corporations to fix bankers' profits.
And it should not seek to prevent investors from making bad bargains. But it is now recognized in the simplest merchandising, that there should be full disclosures.
The archaic doctrine of caveat emptor is vanishing. The law has begun to require publicity in aid of fair dealing. The Federal Pure Food Law does not guarantee quality or prices; but it helps the buyer to judge of quality by requiring disclosure of ingredients.
Among the most important facts to be learned for determining the real value of a security is the amount of water it contains. And any excessive amount paid to the banker for marketing a security is water.
Require a full disclosure to the investor of the amount of commissions and profits paid; and not only will investors be put on their guard, but bankers' compensation will tend to adjust itself automatically to what is fair and reasonable.
Excessive commissions—this form of unjustly acquired wealth—will in large part cease. But the disclosure must be real. And it must be a disclosure to the investor. It will not suffice to require merely the filing of a statement of facts with the Commissioner of Corporations or with a score of other officials, federal and state.
That would be almost as ineffective as if the Pure Food Law required a manufacturer merely to deposit with the Department a statement of ingredients, instead of requiring the label to tell the story.
Nor would the filing of a full statement with the Stock Exchange, if incorporated, as provided by the Pujo Committee bill, be adequate. To be effective, knowledge of the facts must be actually brought home to the investor, and this can best be done by requiring the facts to be stated in good, large type in every notice, circular, letter and advertisement inviting the investor to purchase.
Compliance with this requirement should also be obligatory, and not something which the investor could waive. For the whole public is interested in putting an end to the bankers' exactions. England undertook, years ago, to protect its investors against the wiles of promoters, by requiring a somewhat similar disclosure; but the British act failed, in large measure of its purpose, partly because under it the statement of facts was filed only with a public official, and partly because the investor could waive the provision.
And the British statute has now been changed in the latter respect. The required publicity should also include a disclosure of all participants in an underwriting. It is a common incident of underwriting that no member of the syndicate shall sell at less than the syndicate price for a definite period, unless the syndicate is sooner dissolved.
In other words, the bankers make by agreement, an artificial price. Optimists may argue that, given the progress we have made thus far despite our weaknesses, such progress will continue. Technological advancement and the increasing accessibility of information, they may say, could even accelerate progress. Unfortunately, this is probably wrong for one key reason: open-minded and close-minded people play by different rules in the public sphere. Note that close-minded people are not necessarily bad , nor are open-minded people necessarily good.
For most of human history, it was impossible to even attempt being open-minded. Crushing poverty, omnipresent danger, and the time-consuming pursuit of scarce resources like food and shelter were more than enough to keep humans occupied. But a recent explosion in human progress and access to information has dramatically changed the world we live in, demanding that we utilize a mental toolset that is at odds with many of our other mental instincts.
As information-sharing technology gives a platform to both types of voices, it seems very possible that the close-minded crowd will win more converts. This is because they exploit all the weaknesses of human psychology—they play on fears, they reinforce biases, and they over-simplify things into a coherent narrative.
These tactics are good both for quickly persuading others and for discouraging them from further inquiry. This yields circumstances where the close-minded person is far more likely to change the mind of an open-minded person than the converse.
It is an uneven playing field, and the information age could be tipping it more and more in favor of the close-minded camp. For the close-minded group, new technology is a powerful tool for weaponizing and rapidly disseminating information that confirms pre-existing narratives.
But for the open-minded crowd, new technology complicates things. It demands far more work of them, requiring them to sort through new facts, qualifying their claims and moderating their own beliefs. Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.
And publicity has already played an important part in the struggle against the Money Trust. The metaphorical version of the saying which references publicity evolved over time. Image has been resized and cropped. Great thanks to anonymous YouTube content creator whose inquiry led QI to formulate this question and perform this exploration.
Skip to content. Louis Brandeis? Ralph Waldo Emerson? Robert Walter? Here are some examples: Sunlight is the best disinfectant. While the board of aldermen did meet in public session, it was only to receive business. Many states have open meeting laws that require justifications to be given for closed meetings.
Transparency efforts now focus more on getting the content of those meetings — agendas, minutes, even live or archived audio or video — online. Brandeis seems to have believed in a symbiotic relationship between an informed and an engaged citizenry. The people had not yet joined the fight against corruption because they did not yet know enough about the situation. The printed press, even in its current troubled state, continues to play an important role in generating interest in government and misgovernment, but now it has been joined by outside groups producing their own research and analyses.
While such groups have existed for decades, the Internet has made it possible for them to reach large audiences directly — and if this audience includes reporters, and those reporters then reach even more people, so much the better. It has become easier for a person to turn from passive reader to active participant in politics. To an extent, techniques like data visualizations, which really seem to have taken off in recent years, are important not just for the specific content they present, but for their potential to drive interest in government information.
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