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| 2003
News and Press Releases |
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HEADLINE ARCHIVED:
DESPITE SCANDALS, REASON TO HOPE.
By: Dan Gillmor
San Jose Mercury News, November 9, 2003
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EXCERPT: If you own shares in one of the mutual funds that has
been cheating small investors on behalf of favored clients and/or
managers, you have every right to feel sick to your stomach
-- and furious. This is betrayal on an epic scale. Epic, and
depressing, because mutual funds were supposed to be the refuge
for people like us. Now we learn that supposedly reputable funds
have been just another cog in a financial wheel that, more and
more, seems utterly rigged against everyone but the insiders.
Is there anything we can trust? How many more shoes are left
to drop? ``If you're waiting for the last shoe, you have to
realize this might be a centipede,'' says Joseph A. Grundfest,
who served on the Securities and Exchange Commission under Presidents
Reagan and the senior George Bush. But Grundfest, now a professor
of law and business at Stanford Law School, also urges a sense
of perspective. This is the best advice of all at a time when
it's tempting to see the entire market as hopelessly corrupt.
Here's why I'm finally beginning to get optimistic, even amid
an apparently endless parade of sleaze. American capitalism
is peering over a cliff, but there have to be enough sane and
honorable capitalists who won't let the bad guys pull everyone
else over the edge. It's a binary choice. Small investors won't
do the choosing, not in any immediate way. We have limited power,
and if we all bail out of stocks and mutual funds we'll only
hurt ourselves. No, in the immediate term we're going to have
to rely on two groups of people: big investors, especially pension
funds, and the vast majority of business people who have remained
honorable despite the lure of a flawed system that has almost
encouraged corruption. They aren't the crooks who have been
occupying too many executive suites, and they aren't the manipulators
who abuse trust through legal but unethical chicanery. But if
they don't act, they will be culpable for the eventual collapse
of investor confidence, and of the system itself. Several state
pension funds have pulled their money out of the klepto-funds.
That's a good start, but only a start. Institutional investors
have been demanding better disclosure (though disclosure makes
little difference when insiders are defrauding investors). They
should gang up on executive-suite greed, too. Grossly excessive
compensation is still endemic, and fundamentally outrageous.
One of the largest institutional investors, the California Public
Employees' Retirement System, or CalPERS, took a stand last
week for a more honest system when it said so-called reforms
at the New York Stock Exchange didn't go nearly far enough.
The NYSE has been a promoter and a regulator, a blatant conflict
of interest. One of the most disturbing facets of the ongoing
parade of scandals has been the near-silence from high-profile
executives. Their general unwillingness to go after their peers
speaks volumes about their own values. But when it comes to
really fixing things, big-time capitalists need to face an uncomfortable
truth: They need more government, not less, at least when it
comes to enforcing fair business practices and ethical behavior.
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