Book Review | The Problem of Twelve: When a Few Financial Institutions Control Everything by John Coates

The Problem of Twelve: When a Few Financial Institutions Control Everything by John Coates

The forces behind an economic and political crisis in the making

A “problem of twelve” arises when a small number of institutions acquire the means to exert outsized influence over the politics and economy of a nation. The Big Four index funds of Vanguard, State Street, Fidelity, and BlackRock control more than twenty percent of the votes of S&P 500 companies - a concentration of power that’s unprecedented in America. Then there’s the rise of private equity funds such as the Big Four of Apollo, Blackstone, Carlyle and KKR, which has amassed $2.7 trillion of assets, and are eroding the legitimacy and accountability of American capitalism, not by controlling public companies, but by taking them over entirely, and removing them from public discourse and public scrutiny.

There are five key insights from this book:

1. Corporate Governance is changing dramatically – where large companies are increasingly becoming under the influence of index funds and private equity funds;  

2. Index funds are too good for their own good – owning more than 25% of nearly all large US companies listed on an exchange;

3. Economies of scale create a real political problem – the largest funds have grown the most and continue to grow larger;

4. Private equity funds are not really private and they deserve more scrutiny – in reality these funds ultimately raise their funds from other institutions; and

5. Wall St affects Main St – money and power go hand in hand.

Its an interesting read where the author calls out this being one of the most sensitive political and economic issues of our time.

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Link to Book

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