Small Investors, Sitting Ducks!
Labor Day is traditionally a time to assess the condition of wage workers. But in many ways, today's small investors have more affinity with the proletariat than either class has in common with the unscrupulous insiders, middlemen, and CEOs who have been fleecing both. Today, nonsupervisory workers have the same inflation-adjusted earnings they had in 2001. But investors, if anything, have taken a worse hit. The broad stock market is still down about 18% from its peak in 2000. And no prudent investment strategy is evident. Bonds are unattractive because of low yields and the risk of rising rates. Stocks are trading within a narrow range, dividend payouts are paltry, and there's no bull market in sight. Even real estate is a sudden gamble.
As the Wall Street scandals so vividly demonstrated, small investors ought to be particularly wary of their supposed servants. The worst scoundrels were not the CEOs of outfits such as WorldCom. Far worse were the ostensible agents of investors - the accountants, investment bankers, and stock analysts, who vouched for, and profited from, the deceptions. Regulators, with a few heroic exceptions, also let investors down.
What every recent abuse had in common was that insiders and middlemen manipulated corporate books, inflating the value of stocks and getting rich at the expense of ordinary investors. Self-regulation and market discipline failed. And if enforcement against conflicts of interest is not vigilant, investors will be snookered again.
An important new book, The Best Way to Rob a Bank is To Own One, introduces a valuable concept called "control fraud." The author is William K. Black, and the book is partly the definitive history of the savings-and-loan scandals of the early 1980s.
The S&L scandals foreshadowed the broader Wall Street manipulations that followed. And despite a brief episode of S&L re-regulation, we did not learn the general lessons that financial markets and self-regulation can't police systematic efforts to defraud by those in control. So we were sitting ducks for the next barrage of control frauds by the Enrons and WorldComs, this time with blue-chip investment bankers and tame regulators as enablers. That vulnerability continues.
This Labor Day, wage workers are struggling to re-invent a labor movement; it's only investors who lack an effective interest group. Investors sorely need a movement of their own to fight for transparent markets, honest books, and uncorrupted regulation. Whether in post-Soviet Russia or on Wall Street, the real spectre that haunts capitalism is corruption. Investors of the world, unite!
NOTE: This is taken from an article by Robert Kuttner, appearing on Page 110 of the September 12, 2005 edition of Business Week.
* * * * *
As the Wall Street scandals so vividly demonstrated, small investors ought to be particularly wary of their supposed servants. The worst scoundrels were not the CEOs of outfits such as WorldCom. Far worse were the ostensible agents of investors - the accountants, investment bankers, and stock analysts, who vouched for, and profited from, the deceptions. Regulators, with a few heroic exceptions, also let investors down.
What every recent abuse had in common was that insiders and middlemen manipulated corporate books, inflating the value of stocks and getting rich at the expense of ordinary investors. Self-regulation and market discipline failed. And if enforcement against conflicts of interest is not vigilant, investors will be snookered again.
An important new book, The Best Way to Rob a Bank is To Own One, introduces a valuable concept called "control fraud." The author is William K. Black, and the book is partly the definitive history of the savings-and-loan scandals of the early 1980s.
The S&L scandals foreshadowed the broader Wall Street manipulations that followed. And despite a brief episode of S&L re-regulation, we did not learn the general lessons that financial markets and self-regulation can't police systematic efforts to defraud by those in control. So we were sitting ducks for the next barrage of control frauds by the Enrons and WorldComs, this time with blue-chip investment bankers and tame regulators as enablers. That vulnerability continues.
This Labor Day, wage workers are struggling to re-invent a labor movement; it's only investors who lack an effective interest group. Investors sorely need a movement of their own to fight for transparent markets, honest books, and uncorrupted regulation. Whether in post-Soviet Russia or on Wall Street, the real spectre that haunts capitalism is corruption. Investors of the world, unite!
NOTE: This is taken from an article by Robert Kuttner, appearing on Page 110 of the September 12, 2005 edition of Business Week.
* * * * *
posted by Bob Moser at
5:47 PM
0 Comments:
Post a Comment
<< Home