On Wall Street: Don?T Cry For Henry Blodget

That cackling noise you hear isn’t coming from a flock of demented chickens. It’s the reaction to the fall of Henry Blodget, Merrill Lynch’s Internet stock analyst who’s gone from star to burnt-out cinder. Blodget, who became an icon of the Internet bubble, is slinking out of Merrill Lynch, which hired him with great fanfare three years ago. He’s taking a buyout, and will be gone by the end of the year. The fact that Merrill Lynch is letting him go speaks volumes to what’s happened to his career, which has burst along with the Internet bubble.

But don't cry for Blodget. Or even feel sorry for him. Remember that at the end of the day, he’s still famous, and he’s still rich. Merrill Lynch gave him multimillion-dollar paydays while he was hot, and he’s leaving with a severance package reportedly worth $2 million. Plus, he has a book contract. And unless he was foolish enough to put all his money into his own stock picks, he’s a multimillionaire. By contrast, investors who followed his advice to the bitter end got poor. And no one is offering them book contracts.

Blodget, as you likely know, became famous for his November 1998 prediction that Amazon.com, then trading at split-adjusted $240 a share, would hit $400. The stock roared past even that ridiculous price, making Blodget an instant star. Jonathan Cohen, Merrill’s Internet analyst at the time, said the stock was overpriced. Oops. Merrill moved Cohen out and gave Blodget his job. Guess what? When last I looked, Amazon was selling at the equivalent of $27. But Blodget isn’t offering any refunds. There are no money-back guarantees on Wall Street. And the warranty you get with the merchandise you buy expires the minute your check clears.

It’s tempting to rag on Blodget, whom I talked to once or twice and who struck me as a reasonably decent guy. Instead, let’s see what we can learn from the Blodget bubble. And from the role that the media had in promoting the ridiculous predictions made by people like Blodget, called by some The Great Predictor, and Mary Meeker of Morgan Stanley, a.k.a. Queen of the Net.

For starters, remember that Wall Street mantra: whose bread I eat, his song I sing. Despite recent reforms, many analysts’ incomes depend on how much business they generate for their employers from the companies they cover. Hello? Imagine that my income depended on how many ads NEWSWEEK got from the companies I write about. Do you think it would affect how I think? You bet it would.

You might not have known that the Blodgets and Meekers were in the pockets of the companies they allegedly covered, but every experienced business reporter knew it. (That’s why I almost never quote analysts, and why I generally don’t take their work seriously.)

Unfortunately, institutions that should have known better—most egregiously, CNBC and Fortune magazine—promoted these people endlessly, disseminated their views and gave them wide coverage. It attracted viewers, readers and ads. Life was great. Then, when the bubble burst, they tried to blame almost all of it on the analysts.

And if you’re into symbolism, consider this: The same day that The New York Times announced Blodget’s departure on its front page, the initial public offering of Weight Watchers hit Wall Street and was a big success. Two signs, you might say, that the days of pie in the sky are over. At least for now.