To the Editor:
Except that he holds himself out as an expert in banking matters to your newspaper and others, I know nothing about Richard Bove. I know a bit more about BankAtlantic, because it is required to disclose certain of its financial information to the public.
I agree with the former regulators quoted in your article "Next to Fail? A Backlash Hits Media, Analysts" [July 22] that it is usually not productive for a bank to pursue litigation for defamation against an "analyst" who publishes a demonstrably false or misleading report about a bank.
However, that does not mean that a wrong has not been committed, or that the "analyst" should go unpunished.
It is usually not productive to litigate against an analyst because the facts are technical and complicated, and damages to the bank are speculative. Lay press coverage of any litigated dispute will be superficial, and more likely to reinforce the initial libel than to generate clarification or correction. Even an ultimate victory will probably yield minimal damages, giving the impression that no one was hurt much, and that the analysts' misstatements were insignificant.
Yet losses resulting from analysts' incompetence or worse can be astronomical. You do not have to know much about short-selling and troubled market volatility to realize that negative analyst reports in the current bank stock environment induce hundreds, perhaps thousands, of unsophisticated investors to panic and dump their bank shares at artificially depressed prices. That analysts can foresee that result is indisputable. Indeed, analysts' reputations depend on their ability to move the markets. That's their bread and butter, their reason for being — to generate commissions from trades.
As Justice Holmes aptly observed early in the last century, freedom of speech does not encompass the right to shout "Fire!" in a crowded theater. Justice Holmes did not intend to suggest that one cannot shout "Fire!" in a crowded theater if he has a reasonable basis to believe that the theater is on fire, for example, by observing smoke or flames. He meant, instead, that in certain contexts speech can have results other than the promotion of enlightenment and discourse. Speech can result in tragic rushes to the exit by everyone within earshot, causing death and destruction, rather than reflective consideration of the apparent truth of the statement made.
People should be responsible for the foreseeable results of their speech in such environments.
Like shouting "Fire!" in a crowded theater, cries of "Possible failure!" in a nervous market by participants, such as Mr. Bove, who claim the mantle of respected professionalism foreseeably lead to panic and a mad rush to the exits, rather than reflective consideration and debate about the wisdom of the advice. Accordingly, such cries should be supported either by factual observations or logical and supportable fact-centered speculations, not incompetently constructed analysis.
I have not done the analysis myself, but if what BankAtlantic says is true, Mr. Bove reached his conclusions about the financial condition of the bank by looking at the consolidated financial statements of the bank's holding company, which included a number of nonbank entities engaged in lending activities. Even a novice should know better.
If these allegations are true, BankAtlantic should not have to bring a lawsuit to protect its shareholders from incompetently induced market manipulations. That should be done by federal and state securities regulators who are charged with protecting the markets from losses due to the misdeeds of industry participants.
Yet for too long those regulators have refused to act to require a level of professionalism and competence among the analysts which minimally meets the standards imposed on the rest of us. Given that failure, I applaud BankAtlantic for fighting the battle for us all.Richard R. Cheatham
Kilpatrick Stockton LLP