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Corporate Greed and Investor Confidence
| | Thursday, May 20, 2004 @ 03:24 PM EDT
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Contributed by: Guidant
Guidant Properties
Read more archived articles about Economy - Bad
Have we finally reached the end of our economic recession? Can we expect the market to continue to rebound? These are questions many investors consider as they parcel out their retirement investment spending. The corporate scandals of the past few years, Enron, WorldCom, etc., “created a crisis of investor confidence the likes of which hasn’t been seen since the Great Depression,” as reported by Fortune magazine. Has investor confidence returned to the market?
As investors we are certainly more wary than in the glory days of the ‘90s when stocks could be chosen by flinging a dart onto a page of the Wall
Street Journal. Rates of return are not guaranteed in a system like the stock market where investment values are not necessarily based on the earnings of the investment. “The consequence of this situation (corporate scandals) is that, as long as it remains possible to be able to make money without regard for production, there will be room for speculative markets that take off, fly high for a time, and then crash land in spectacular fashion,” writes Harry Glasbeek, author of The Scandals, the Stock markets and Corporate Law. Glasbeek’s outlook seems to reflect skepticism of a true market rebound with our current system in place.
Alan Greenspan told the Senate Banking Committee in July of 2002 that “an infectious greed seemed to grip much of our business community… It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed have grown so enormously.” Greenspan points out the opportunities for greed that the stock market provides regarding corporate disclosure of their financial position and their relative stock market price. Ronald Honse, a representative of the Communications Worker Labor Union, explained this concept. “Corporations [are] misrepresenting their worth, claiming they [are] worth much, much more than they [are]. As their true value is disclosed, their value drops and their stock value plummets.” Honse alerts us stating: “Since a large portion of 401k’s and retirement funds are invested in the stock market, their value also decreases.” Now more than ever, IRA investors must be cognizant of what their retirement portfolio is doing. Clyde Weiss, a member of the American Federation of State, County, and Municipal Employees (AFSCME), estimated “The Enron scandal alone caused AFSCME’s members to lose $1.5 billion in pension value.” This makes it even more clear that the days of passive investing are over.
With the advent of IRAs and 401k’s the government effectively passed the responsibility of saving for retirement onto the employees. Now it appears that the corporate scandals of the early 21st century are passing the responsibility of investment accountability on to the individual investor. It is time for individual investors to become better educated on finances and investing. Whether we like or not, we are all now individual investors. Robert Kiyosaki, in his book Prophecy tells us, “Being proactive, educated, and prepared is much better than the financial strategy most people have when it comes to their investments… the passive strategy of ‘buy, hold, and pray.’”
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