M
Matt25
Guest
Capitalism in the Dock
After the collapse of communism and the adoption of free-market policies by just about all countries and political parties, market capitalism should be triumphant. But recent books highlight the shortcomings of the free markets. In “The Battle for the Soul of Capitalism” (Yale University Press), John Bogle analyzes what he considers to be crucial failings in the financial markets. Bogle, former chief executive of the Vanguard mutual fund group, wants the system to be run in the interests of the shareholders and owners, rather than the managers.
Bogle argues that the last couple of decades have seen serious erosion in the conduct and values of business leaders, investment bankers and money managers. A staunch defender of capitalism and free markets, Bogle nevertheless laments the excessive attention given to stock market prices, instead of the intrinsic values of corporations. Drawing on his own experience in the mutual fund sector, he looks at how this sector has contributed to current problems. These funds not only siphon off very large sums of money in the form of fees and their share of profits on stock market gains. They also serve to isolate managers from any form of control by stockholders, Bogle contends. Institutional investors in general, such as retirement funds and mutual funds, now own two-thirds of all U.S. equities. In fact, the largest 100 funds account for no less than 52% of equities.
Another factor adversely affecting financial markets, Bogle notes, is the concentration on short-term gains. A few decades ago mutual funds saw around 15% of their stocks turn over in a year. By the late 1990s this had risen to 100%, or more, as fund managers chased quick returns in the booming market. This trend from investment to short-term speculation in stocks means that funds are less likely to be interested in pressuring companies to improve their ethics or management. As well, corporate directors, auditors, and legislators have all too often failed to ensure sufficient oversight of how companies are being run, leading to the scandals of recent years.
After the collapse of communism and the adoption of free-market policies by just about all countries and political parties, market capitalism should be triumphant. But recent books highlight the shortcomings of the free markets. In “The Battle for the Soul of Capitalism” (Yale University Press), John Bogle analyzes what he considers to be crucial failings in the financial markets. Bogle, former chief executive of the Vanguard mutual fund group, wants the system to be run in the interests of the shareholders and owners, rather than the managers.
Bogle argues that the last couple of decades have seen serious erosion in the conduct and values of business leaders, investment bankers and money managers. A staunch defender of capitalism and free markets, Bogle nevertheless laments the excessive attention given to stock market prices, instead of the intrinsic values of corporations. Drawing on his own experience in the mutual fund sector, he looks at how this sector has contributed to current problems. These funds not only siphon off very large sums of money in the form of fees and their share of profits on stock market gains. They also serve to isolate managers from any form of control by stockholders, Bogle contends. Institutional investors in general, such as retirement funds and mutual funds, now own two-thirds of all U.S. equities. In fact, the largest 100 funds account for no less than 52% of equities.
Another factor adversely affecting financial markets, Bogle notes, is the concentration on short-term gains. A few decades ago mutual funds saw around 15% of their stocks turn over in a year. By the late 1990s this had risen to 100%, or more, as fund managers chased quick returns in the booming market. This trend from investment to short-term speculation in stocks means that funds are less likely to be interested in pressuring companies to improve their ethics or management. As well, corporate directors, auditors, and legislators have all too often failed to ensure sufficient oversight of how companies are being run, leading to the scandals of recent years.