Sunday, October 23, 2016

CLINTON ADMINISTRATION New Theory to Explain Economic Inequality and Low Growth Calls for an Attack on the Mutual Fund Industry

Clinton campaign chairman John Podesta apparently thinks there is a promising new solution for the non-existent problem of inequality.

He forwarded an email to super lefty interventionist economist Heather Boushey, who is likely to play a major role in a Clinton administration, originally from Harvard Law Professor Einer Elhauge who wants to let loose the antitrust division of the DOJ on investors who hold significant positions in multiple companies in a given industry(via Wikileaks) :
From: John Podesta <<>
 Date: Tuesday, July 21, 2015 at 7:44 AM
To: Heather Boushey <<>>, Ira Fishman <<>
Subject: Fwd: New Theory to Explain Economic Inequality and Low Growth

   ---------- Forwarded message ----------

From: Einer Elhauge <<>
Date: Monday, July 20, 2015 
Subject: New Theory to Explain Economic Inequality and Low Growth 
To: Einer Elhauge <<>

My new article discusses a previously hidden phenomenon that has potentially large implications for economic inequality, economic growth, corporate governance, and antitrust enforcement.  For the analysis, see Horizontal Shareholding as an Antitrust Violation at SSRN:  Here is an abstract:  Horizontal shareholdings exist when a common set of investors own significant shares in corporations that are horizontal competitors in a product market. Economic models show that such horizontal shareholdings are likely to anticompetitively raise prices when the owned businesses compete in a concentrated market. Recent empirical work not only confirms the prediction of these models, but also reveals that such horizontal shareholdings are omnipresent in our economy. I show that such horizontal shareholdings can help explain fundamental economic puzzles, including why corporate executives are rewarded for industry performance rather than just individual corporate performance, why corporations have not used recent high profits to expand output and employment, and why economic inequality has risen in recent decades. I also show that stock acquisitions that create such anticompetitive horizontal shareholdings are illegal under current antitrust law, and I recommend antitrust enforcement actions to undo them and their adverse economic effects.
This is really off the charts.The clearest example of such concentration would be the mutual fund industry. Indeed, in his paper, Elhauge uses mutual fund money managers as an example and focuses on little else. He writes:
Consider the following figures from 2013 to
2014. In the banking industry, the top four shareholders of JPMorgan
Chase (BlackRock, Vanguard, State Street, and Fidelity) were also the
top four shareholders of Bank of America and four of the top six
shareholders of Citigroup, collectively holding 19.2% of JPMorgan
Chase, 16.9% of Bank of America, and 21.9% of Citigroup.
He is even concerned about index funds:
[W]hile index funds today may lack enough stock to
alone create anticompetitive horizontal shareholdings in many concentrated
markets, index funds have been growing rapidly in a way that
increases the problem because they currently do index fully across horizontal
competitors in each industry. 
The idea that, for example, Jamie Dimon at JPMorgan Chase is going to forego profit because multiple mutual funds also hold positions in Citigroup and Bank of America is absurd. To bring the DOJ into the picture to enforce against such concentrations is taking this absurd nonsense to Dali-like levels of detachment from reality. But, yet, we have the Clinton campaign chairman forwarding this nonsense out to future policymakers.

We are doomed.


1 comment:

  1. It is insane and totally lacking in understanding for this guy to be blaming mutual funds in this instance. The irony is that mutual funds are so heavily regulated already. The Investment Company Act of 1940 places many limits on the investment activities of registered investment companies (mutual funds). These include limits on the concentration of fund assets in certain companies. There are even specific concentration limits for concentration of fund assets invested in banks and bank holding companies for individual funds and on a fund complex wide basis. Apparently, this concentrated cross-investment was a major issue of concern after the market crash in 1929 and the subsequent orgy of securities market regulation following the creation of the SEC in the early 30's (led initially by former bootlegger Joe Kennedy of all people!) BTW, hedge funds (unregistered investment companies) are not subject to such bothersome limitations as they are not open to investment by the hoi polloi, only, ahem, "accredited investors."