The Ethics of Banking: Conclusions from the Financial Crisis (Issues ...

44 3 The Ethical Economy of the Capital Market
the demands of information efficiency and fulfill the liquidity function, as many
suppliers and demanders as possible must be active in a market in order to generate
large enough volumes of supply and demand so that genuine markets for companies
and corporate strategies emerge. Globalization, by enlarging the market, tends to be
conducive to information efficiency and stock market liquidity. An efficient capital
market calls for adequate liquidity so that investors are not “locked in” to their
investments. 16 Conversely the preservation of wealth and the safekeeping of means
of purchasing in the capital market is a purpose which requires that fluctuations in
the value of assets in the capital market do not become excessive. In the capital
market, then, important considerations will be that decisions in the capital market
direct capital quickly and flexibly to whatever is the best use, but without giving rise
to unnecessary fluctuations in value which cause uncertainty to savers and investors
and drive them out of the capital market.
The mobility of capital and its efficient allocation on the one hand, and the conditions
of stability and liquidity of the capital market on the other hand, are mutually
antagonistic aims to some extent, partly because of speculation. Stock exchange
speculation must on the one hand seek out the minutest changes in the potential
returns on investments and bring them to evidence in the market. On the other hand,
however, it must avoid creating artificial fluctuations in value which have no “substance”
in the net asset values of shares and firms. Consequently, speculation is
meant to be highly speculative on the one hand, and must find the tiniest differentials
in value, but should not produce any artificial volatility on the other hand. In
the orientation of the values of capital market actors, a tension arises here between
speculative dynamism and the stabilization of volatility through speculation.
It must not be overlooked, however, that stock market speculation rewards the
kinds of speculative anticipations which have correctly anticipated improbable
increases in value. By doing this, the capital market rewards the highly speculative
speculation which dampens price fluctuations and removes greater volatility from
the market. The popular view that speculation always amplifies price fluctuation is
wide of the mark.
16 BOATRIGHT (1999), p. 116, points out that the lack of liquidity options for sizeable packages of
shares can be a problem for large pension funds because these are often not in a position to voice
their protest against weak management teams by selling the shares in their companies. They must
therefore resort to influencing management by remaining invested in the company and exerting
direct influence over the leadership of the company. A pension fund like CalPERS (California
Public Employees’ Retirement System) which is invested in shares with a market value of 198.9
billion US dollars (as of 15 September 2009, cf. http://www.calpers.ca.gov/) has difficulty in selling
a package of Microsoft shares to the value of 1 billion dollars on the stock exchange without taking
a price hit. – The change in the form of capitalism from private ownership capitalism to “pension
fund capitalism” can be traced from the following figures: “In 1970, individuals held more than 72
percent of shares, while institutional investors (pensions, mutual funds, insurance companies, and
private trusts and endowments) accounted for about 16%. By 1990, the holdings of institutions had
risen to more than 53%, with private and public pension funds owning approx. 28% of the equities
of US firms.” (quoted after BOATRIGHT (1999), p. 114).