Remember the Global Settlement of Analyst Conflict of Interest, circa April 2003?  In this record-breaking $1.4 billion settlement, ten of the household-name investment banks settled SEC charges regarding conflicts of interest between analysts that were issuing "buy" or "strong buy" ratings for companies that were tanking but that happened to be investment banking customers of the analysts' employers.  (For example, Enron stock was rated a "buy" until it was at about 80 cents a share.)  Of this settlement amount, $387.5 million was to be used to reimburse investors, and $80 million was to be used for "investor education."  The WSJ today gives us a bleak status report on that investor education initiative.

In a nutshell, the SEC has done nothing with federal portion of the money and has suggested that it sort of escheat to the NASD.  The states have put their money to use in such "innovative" approaches as billboards and PSAs.

Here's my proposal.  (As an aside, I have to admit that I have two minds about retail investors:  protect them in a rigged game, but at the same time, if you're going to be stupid, you're on your own.  I think the SEC also has this cognitive dissonance as well, though.)

Go to the high schools.  Create a curriculum on being a smart investor.  We teach drivers' ed. in schools, why not investors' ed.  I understand that high schools don't have the time to teach everything that a smart adult needs to know, but bad investing, like bad driving, can have some serious externalities.  And, investing in the stock market is becoming extremely common.  (In 1999, half of all households owned individual stocks.)   So, let's use this $80 million to teach smart investing in the high schools.

If you don't want to turn the money over to school districts, create a program like Junior Achievement.  I was a volunteer Junior Achievement teacher for second graders and taught them the "economics of the family."  I believe in the high grades, Junior Achievement teaches more about economics and entrepreneurship.  Using this as a model, create a national program on investor education and start the education early.  If we are going to have private social security accounts, I think that this model would be even more useful.

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