Friday, November 29, 2002

Alan Greenspan, the Big Man in Finance


It occurs to me that the big man in finance is not Alan Greenspan or whoever happens to chair the SEC at the moment, not the heads of Wall Street trading firms and certainly not the business moguls who run international companies.

The big man in finance is the institutional investor and it's long past time for him to exert pressure for reform to a degree that matches his power. Like McDonalds in the French fried potato market, the institutional investor is the big guy on the block. When McDonalds wants a particular potato, they don't have to look for it, growers are anxious to fill the need.

So, if institutional investors want one of their own, John H. Biggs, who is himself chairman of a large pension system and who all (except the brokerage houses) want and esteem, to head the new SEC accounting regulatory agency, they're going to get him. That is, if they make their desires known. McDonalds, after all, has to name the potato.

If institutional investors want teeth and transparency in accounting procedures, they're going to get them, no matter the desires of conglomerates to cook the books.

Likewise, if they want stock options declared as expenses, that will happen as well.

Overcompensated CEO's, outrageous Golden Parachutes, rubber stamp Boards of Directors? All can be changed most effectively by institutional avoidance of the stock.

Don't like some of the derivative gimmicks that cloud already obscure balance sheets? The delicate fist of the institutional investor will be heard if it decides to pound the table.

Name your relief of choice or your regulation of the day and, if you worry yourself sick over your fifty-two shares of Universal Gidget, you may as well whistle in the night, passing a graveyard. But if you make the decision on how (and where) to invest billions of dollars in pension funds, you're going to have your way.

I presume there is a professional association of institutional investors and, if there isn't, there ought to be. These guys invest the retirement money of millions of schoolteachers, working stiffs and small pensioners and their responsibility is greater than Warren Buffet to himself. A hit in the market for these folk isn't just a "win some, lose some" event, but a lifestyle threatening disaster. It's not news to you that the meltdown of WorldCom, Enron and others swept away a good portion of the little guy's money. Presuming the institutional investor takes these people seriously as a trust, banded together, they could pretty much have their way with the methods whereby publicly traded companies report their results and keep their books.

And, almost as a side issue, you get better run companies that are more consistently profitable in the bargain.

My Daddy used to say that the market was made up of "the sheep, and those who shear the sheep." But Daddy was a creature of the Depression and those were times before such things as institutional investors. What hasn't changed since the Thirties is the incredible ability of the greedy to find new investment vehicles to support their greed.

Institutional investors are our best shot at a shepherd---far better than the Congress and miles ahead of any systems suggested by Wall Street.