The column incorrectly credited the Wall Street Journal for a recent article on Wall Street firms securitizing claims on life insurance proceeds. The article ran in the New York Times.
Wall Street's Mania for Short-Term Results Hurts Economy
It's been a year since the onset of a financial crisis that wiped out $15 trillion of wealth from the balance sheet of American households, and more than two years since serious cracks in the financial system became apparent. Yet while the system has been stabilized and the worst of the crisis has passed, little has been done to keep another meltdown from happening.
Even the modest regulatory reform effort launched with much fanfare back in the spring is now bogged down by bureaucratic infighting and special interest lobbying. And back on Wall Street, the wise guys are up to their old tricks, suckering investors into a stock and commodity rally, posting huge profits on their trading desks and passing out Ferrari-sized bonuses. The Wall Street Journal reports they've even cranked up the old structured-finance machine, buying up claims to life insurance proceeds and packaging them into securities.
All of which makes it particularly disappointing that so little attention was paid this week to a report by a panel convened by the Aspen Institute on the "short-termism" that has now become hard-wired into the culture of Wall Street and corporate America.
This wasn't just any blue-ribbon committee. Its members include billionaire investors Lester Crown and Warren Buffett; mutual fund pioneer John Bogle; Richard Trumka, the soon-to-be new president of the AFL-CIO; present and former corporate chief executives Jim Rogers of Duke Energy, Lou Gerstner of IBM and Henry Schacht of Cummins; retired Wall Street hands John Whitehead of Goldman Sachs, Pete Peterson of the Blackstone Group and Felix Rohatyn of Lazard Freres; Marty Lipton, Ira Millstein and John Olson, the deans of the corporate bar; and respected academics such as Bill George of Harvard and Lynn Stout of UCLA.
Their complaint is that the focus on short-term financial performance by investors, money managers and corporate executives has systematically robbed the economy of the patient capital it needs to produce sustained and vigorous economic growth. And while their recommendations may not be as sexy as a cap on Wall Street bonuses or a ban on high-frequency trading, they get to the root cause of the financial crisis in ways that other reform proposals have not:
-- An excise tax on all security trades and a higher tax rate on short-term trading profits.
-- A revised definition of the fiduciary duty that pension and mutual fund managers owe to their investors, along with compensation schemes that better align their incentives with long-term objectives.
-- A requirement that only long-term shareholders be allowed to elect directors or vote on corporate governance issues.