Wall Street Chaos: Where are the owners?
The developing crisis on Wall Street will raise a long and intense debate about state regulation of the capital markets. But the problem is not just the rules that govern trading, it is also the culture of major financial centres which in recent years has clearly become deeply irresponsible and even more herd like than in the past.
The bodies who have the real power to change the culture are those who own these companies: the big pension funds and institutional investors. They though rarely engage with the corporations they own on issues such as governance, risk or remuneration. In fact, most were seduced by the promise of “super returns” and lost sight of whether those returns were actually sustainable in the long term.
Unfortunately, the responsibility of the owners has been overlooked in the debate about the credit crunch. (Although stumbling and mumbling, to his credit, has recently suggested this is a crisis of ownership not markets.) If we are to prevent all this happening again in another decade or so, owners need to be factored in as a primary source of greater stability. Maybe the state should consider requiring and incentivising responsibility on the part the big institutional investors as well as the banks and traders.