Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Tuesday, August 08, 2006

Hoisted from Comments: Conflicts of Interest in American Finance

Chistofay writes http://delong.typepad.com/sdj/2006/08/a_funeral_for_p.html#comment-20754185:

Decent fund managers. That sounds like a list that can be counted on one hand, does anyone take up that dare?

While I'm a capitalist and a pro-capitalist at that, I might be too cynical to attempt making a list. I would not include the home-town heavy Fidelity as I've read too much on how Fidelity might have traded its fiduciary/independent responsibility to lunch at the table with Fortune 500 upper management to be declared decent. Fidelity does not vote "fiduciary" but "management-support". It gets the big 401 K (K-strikeout for the mid class) management contracts by wink-wink nudge-nudge won't vote againist management quid pro quo.

One of the many projects so far on the back burner that I don't know when or if I will ever get to it is to try to roughly quantify these major conflicts-of-interest in American finance:

  • You give us your company's investment banking business, and we'll put you personally on the list of those offered underpriced shares in IPOs.
  • You give us your 401(k) business, and we'll vote the shares of those who have invested in our mutual funds for the incumbent management.
  • You give me a cushy directorship, and I'll vote for whatever compensation you want as CEO

There are others. But how big a deal are all of them, taken together?

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