Trust, but Verify

Information is a weapon on Wall Street. Words are used as artillery or camouflage. They attack and deceive. George Orwell’s observation now applies to business. “Political language,” he wrote in 1946, “is designed to make lies sound truthful and murder respectable, and to give an appearance of solidity to pure wind.” Such is the language of business and Wall Street.10

Sharing information is not the purpose of language on Wall Street or corporate America. In commerce, where one invariably loses and someone else gains, language discloses information, and that is different than providing context or meaning.

According to Arthur Levitt, the former SEC chairman, most financial disclosures are designed to protect the provider of the information—not to inform readers. Levitt says this is because most issuers of equities, debt, and other investment instruments are afraid that if they wrote plainly, someone might understand what was at stake. “Imagine what would happen if a stock prospectus said: ‘You could lose your shirt if you buy this’.” Levitt adds:

This precise problem sparked some of the great scandals of the last financial crisis. Investments were packaged and sold without the kind of forthright disclosure that would have made plain their riskiness. They came with volumes of documentation, footnotes and disclaimers, but at the cost of clarity and focus. Generally, one could predict that the more documentation necessary to explain an investment, the more likely ...

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