Friday, April 23, 2010

The New Standard For Investing? Are You Kidding?

George Soros and Andrew Ross Sorkin share a common passion: They both appear deeply concerned about socially beneficial investing.  As Soros states, "Whether or not Goldman is guilty, the transaction in question clearly had no social benefit."  Similarly, Sorkin writes, "What purpose does a synthetic C.D.O., which contains no actual mortgage bonds, serve for the capital markets, and for society?"  I am highly confident both Soros and Sorkin have made investments with dubious social benefit in the eyes of most people.

Let's consider these statements.  We pretty clearly see that consenting adults, so-called "sophisticated investors" chose to enter into the transactions in question.  (Side note: If you ever have the pleasure of being called a sophisticated investor, that very likely means the person telling you such confidently believes your check will clear.)  So, in the moment, the individuals best suited to judge the merits of the decision believed they were making a good decision.  By construction, a good decision must benefit them.  So, who's to judge after the fact?

But more importantly, who should be the judge of whether a potential investment has merit for society?  We "allow" all kinds of investments with far less ambiguous merit.  Cigarette manufacturing and sales, for example.  Should Congress decide which investments merit capital because they meet someone's view of socially beneficial?  That's an interesting contrast to the recent Supreme Court decision striking down a ban on animal cruelty videos.

Making financial regulations and investment decisions based on standards of "social benefits" risks too much in a free society. 

[Oh, and those investments of dubious social value?  Here's a guess: Soros engages in high frequency equity trading, and Sorkin at some time in his career has owned Philip Morris stock in a mutual fund.]

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