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Fri, 07/02/2010 - 13:00 | by admin
July 2, 2010
Amy Domini Calls for an End to "Economically Useless" Investment Vehicles
Amy Domini, founder and CEO of Domini Social Investments, participated in the high-level OECD Annual Forum in Paris on May 27, and published a new article in the OECD's magazine, OECD Observer. This year's forum was entitled "Road to Recovery: Innovation, Jobs & Clean Growth." The Organisation for Economic Co-operation and Development (OECD) is an organization of 34 developed countries committed to democracy and the market economy.
Amy participated in a panel discussion including representatives of both trade unions and private sector firms regarding how improved business ethics could help to restore public trust in financial and corporate institutions. Amy spoke of the pivotal role of finance in achieving more ethical business models: "If finance is working against the goals of human dignity and ecological sustainability, then governments and civil society will be incapable of achieving those goals of restoring trust."
Concurrent with the conference, Amy published a call for investors to cease the destructive practice of diversifying their assets into "economically useless vehicles."
In "Saving Capitalism from Futile Diversification," an article published in the OECD Observer, Amy argues that Modern Portfolio Theory, the dominant approach to professional portfolio management, has promoted the benefits of diversification, yet broad diversification did not protect investors during the global financial crisis.
In fact, Amy writes, the emphasis on diversification at all costs led financial firms to create derivative instruments based on the value of real assets that institutional investors didn't own and didn't want. "They found they could bet on real estate without owning it, they could bet on the interest rate a mortgage paid versus what a treasury bill paid, they could bet on robust demand for rice without owning the rice." Speculation on commodities drove double-digit increases in the price of staple foods, creating starvation in some African countries.
"Modern portfolio management gave birth to a healthy idea: diversification," Amy concludes. "But that healthy idea has been subverted. This is not a problem that markets can correct on their own: the strong arm of government must be utilized before the second wave occurs. Diversification into assets that produce no goods or services to humankind undermines capitalism."
Amy Domini was honored by Time magazine in 2009 as one of 25 "Responsibility Pioneers," and in 2005 as one of the 100 most influential people in the world. In 2008, Directorship magazine included Amy Domini in its Directorship 100, a list of the most influential people on corporate governance and in the boardroom. In 2010, Investment Advisor magazine listed her as one of the "30 most influential individuals in and around the planning profession over the last three decades." She has received honorary doctorates from the Northeastern University College of Law and Yale University's Berkeley Divinity School.
- Amy Domini, "Saving Capitalism from Futile Diversification"
- Summary of Amy Domini's remarks at OECD Forum
- Steve Lydenberg, Chief Investment Officer, Domini Social Investments, "Markets at Risk: The Limits of Modern Portfolio Theory"