nancylebov (nancylebov) wrote,

A claim about investors who remembered the Depression

On facebook, Stephen Simmons said:
Anyone my age or older here, folks whose parents were born during the Depression? If so, think back. think back to any extended-clan gatherings you found yourself at prior to 1974. Did you ever listen to our grandparents talk about money? The difference between them and us are instrumental in understanding this crisis.

Our grandparents didn't "have money". But, having raised families during the Depression, they had learend the value of saving up against future need. So, they all had spent a lifetime squirreling-away a few bucks here and there. Most of them had a little of that money -- probably only a few thousand dollars, if that much -- in some corporate stock or other. And if you *listened* to them when they got together, they talked about what the companies they owned were doing. Because they paid attention. And they voted those proxies, every year. And they wrote letters to the Board, if the company did something they didn't approve of. Sure, my grandmother's letter only represented a couple hundred shares. But so did each of the thousands of *other* such letters the Board received. The Boards listened.

And he followed it with a claim that we're all guilty for the financial crisis because we delegated thought about our investments to mutual funds and money market accounts.

I suspect this is an over-generalization (if nothing else, some people remained active investors, and some people never had money to invest), but I thought I'd check with my favorite non-random sample. What do you know about investment habits of people who remembered the Depression?

I consider it possible that putting so much emphasis on environmentalism and the treatment of employees combined with thinking of corporations as naturally evil caused people to loose track of the idea that there's some virtue in reliably producing an ordinary honest product, but I also think this was, at most, a minor contributing factor.

A bit more from Simmons-- something I find more plausible:\
Meanwhile, take a moment to wonder about the handful of folks who owned the other 20%-ish of those institutions. Who were they? Well, thanks to the stock-options that became a standard part of executive compensation as a way around the Clinton-Gingrich tax reforms, they were generally the executives themselves. Since they were the only ones who actually VOTED their shares, a system evolved in which a very small group of people were essentially voting the controlling votes on each other's salaries. With predictable results ...

I've also heard that basing most of executive compensation on stock prices was a result of people thinking that those executives weren't doing much of anything to get their (moderately high) salaries, and getting them to focus on stock prices would get them to do something. It seemed like a good idea at the time.

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