Innovating the Fiduciary Way

A Journey from Neoliberal Financialization to The Fiduciary Way of Prudent Stewardship, told in Pictures 

We start with a sketches shared over LinkedIn by Laura K. Buzyna depicting the current way that Neoliberal Financialization of Fiduciary Money is widely seen as Asset Managers standing between Business and Asset Owners.

What is powerful about this sketch is the way it shows the redundancy of Asset Management and Asset Owners, both of which are seen as deploying capital to earn returns.

If Asset Management and Asset Owners are both deploying capital to realize returns, why do we need Asset Managers to intermediate between Asset Owners and Businesses that are receiving the capital from Asset Owners via Asset Managers, and paying returns to Asset Owners, via Asset Managers.

The Journey in Words, Without Pictures 

They have the best words.

Words like “asset” and “owner”. Simple. Easy. Each only two syllables. Both resonant with good feelings. If each word, separately, feels good, then the two combined, into “Asset Owner”, most also be good. Right?

So we think, without really thinking about it.

But “Asset Owner” is a misnomer. They are playing a trick on us.

A sleight-of-hand performed using words

In truth, the entire Neoliberal social narrative is such a sleight-of-hand performed using words.

The three primary principles of Neoliberalism are:

  1. The Invisible Hand;
  2. The Growth Imperative;
  3. Government vs. Markets Duality.

As with “Asset Owners”, these words are simple and easy, resonant with good feelings. 

Until we discover the truth about what these good-feelings words are really teaching us to think about and to expect from Money and Finance and Enterprise and the Economy and Government and Civil Society.  Then we see that the truth is not quite so good-feeling as the words wants us to believe it is.

Consider the Invisible Hand. These words reference the theory that all choices made in the markets represent the sum total of the individual choices made by each of us, as individuals deciding for ourselves what is in our own best interest.  Not selfishness, so much as self-determination.

“Markets don’t judge. People get to choose.”  That’s the theory.

In the commercial markets for “stuff”, this may be more true than not. In the absence of market manipulation to create monopolies, most businesses want to sell the most “stuff”, and so they want to sell to larger customer bases that will very often represent the larger population overall. 

So the markets for “stuff” maybe are more or less accountable to the Invisible Hand as the social contract between enterprise and popular choice.

Less so the share price trading markets for money to finance enterprise, which is largely how society decides what choices will be made available to popular choice in the commercial markets for “stuff”.  In these markets, money matters; people don’t. Or rather, people with money matter. People without money, not so much.

So unless the economy is good at sharing out wealth broadly across the population, so that a broad cross-section of the population participates in the share price trading markets on a roughly equal basis, the share price markets are not accountable to a social contract with popular hand.  They are accountable instead to the popular choices of rich people.

Then, there is The Growth Imperative, which teaches us to believe that unqualified quantitative Growth in transaction volumes is the Magic Bean that guarantees a good life for all (or at least most).

This Imperative constrains the choices that market participants make in the share price trading markets to placing bets on where the Growth is going to come from. 

So even in an idealized share price trading market, participants are only choosing to finance enterprises that are showing the promise of growth in their share prices. 

Now let’s add the introduction of institutional investors – pensions & endowments – into the share price trading markets. These institutions own and control vast amounts of money, individually and collectively. So much so, that they come to dominate the share price trading markets, pushing individuals to the margins: buy-and-hold becomes buy-low-to-sell-high becomes buy-high-to-sell-higher.

Individuals buy to hold because most individuals buy shares when they have money to invest, and hold those shares until they need that money back to spend in the physical economy, hoping that over the intervening period the price will have gone up, and when they sell, idiosyncratically, they make some money, opportunistically.

Institutions are not idiosyncratic. They are ongoing.  Once they buy, they never have to sell, because if they do sell, they just have to use the proceeds of that sale to buy something else.  This is anathema to the markets.  Markets need liquidity.  Vast sums of money owned and controlled by institutions that enter the market to buy and never sell would so impair liquidity that the markets would fail.

So, institutional money, once it enters the markets, has to be made to trade, selling frequently to take a profit, whenever there is a profit to be taken, or to avoid a loss, whenever there is a loss to be avoided. Otherwise, the markets won’t make money.

And so we find ourselves in the situation we are now in, with pensions and endowments as institutional fiduciary owners of tens of trillions, collectively, worldwide, of intergenerational fiduciary money providing financing, pretty much exclusively, to Asset Managers placing bets on share prices with this Fiduciary Money, buying shares when they think the price is low, and selling them as soon as the price gets high enough so they can take a profit, using the sales proceeds to buy other shares at a perceived low price to sell when the price gets high enough.  

Pensions & Endowments are financing Market Makers Making Money Making Markets by speculating on Growth in share prices that is structurally, not morally, reductionist, extractive, externalizing, dehumanizing and uncaring. Recklessly unreckoning with the consequences of their speculation. Because the markets are booming.

Which brings us to the third principle of Neolineralism