The Ordinary Investors Aren’t Real

Most debates over financial regulation are, in an obvious first-order sense, about whether regulation should favor one group of rich powerful financial professionals, or another group. Corporate governance disputes, for instance, basically come down to whether corporate chief executive officers should have more control of their companies, or whether instead more control should go to hedge fund managers and the executives of big asset management companies. This is a problem because regulators can’t really make rules on this basis. They can’t be like “we’ve heard that some CEOs’ feelings are hurt when hedge fund managers criticize their multimillion-dollar paychecks, so we’re changing the rules to be nicer to the CEOs.”

They don’t have to, though, because this is only true in an obvious first-order sense. In fact the CEOs and the hedge fund managers are just representatives of broader groups and more important principles. The hedge fund managers will tell you that they invest the pension money of ordinary people, and that anyway they are advocating for more power for ordinary investors. The CEOs will tell you that they just want to be able to make long-term decisions for the good of their companies in a way that will preserve ordinary people’s jobs and savings. And then if the regulators make a rule favoring the CEOs they can talk about the ordinary workers they’re protecting, and if they make a rule favoring the hedge fund managers they can talk about the ordinary investors they’re protecting, and it is all much more palatable than if you just talk about the CEOs and the hedge fund managers, and also it is basically true. It’s not like the CEOs and the hedge fund managers are fighting each other in a closed ecosystem; the balance of power between them does matter, in an indirect but real way, for everyone else.