> I'm also not sure why bonds would shield you from liability. You're still giving the company money to do these bad things, why does it matter if you have ownership?
Sorry, should have clarified "government bonds" here.
We are hypothetically talking about changing the rules, so we could change them to whatever.
I think the fundamental problems here are a lack of oversight, and also a lack of financial incentive to avoid defaulting in the very long term (as a "mortal" investor, at some point you are going to cash out).
Thinking about the 401k, you mention the S&P500 index, but there are thousands of indices. There could be an S&P500 "proper oversight" index, that filters the S&P500 by some oversight metric. If that gives you 200 stocks instead of 500, and that's too little diversification for you, there could also be an MSCI ACWI IMI "proper oversight" variant as well.
Creating an exemption for 401 and pension plans in general could be an option, but TBH many index funds are big investors in companies, and they do often have a say.
> Sorry, should have clarified "government bonds" here.
Sure, no problem. But what about when the government does bad things and gets sued? At least something to think about.
I think some of the things you're discussing here are still fundamental government enforcement issues. You can create a "proper oversight" index but that doesn't shield individual investors. Facebook would have been part of that, for example, but now things have changed and the company could be open to liability for damages. I think the main issue here is there is too much risk for individual investors - they can't be experts in every stock or research every company - or get out if they start to see a pattern of fraud. So the only people who will own companies will be wealthy individuals and institutions that can fight lawsuits.
I also don't think this solves the concentration of wealth to the top companies. You can be a small, highly ethical company but not be able to raise capital in the public markets because investors are too risk adverse.
In my view, I think if you believe that there is a lack of oversight and a financial incentive to default, then you need to go back and look at how the government enforces rules that already exist before blowing up the entire capital markets for regular people. They seem to work pretty well, overall. Government bonds pay nothing now - if every investor had to exit the market (me and you) we'd just be stuck with useless dollars and no means to deploy them.
If you haven't read it, Fooling Some of the People All of the Time is a great, but also depressing read into this.
Sorry, should have clarified "government bonds" here.
We are hypothetically talking about changing the rules, so we could change them to whatever.
I think the fundamental problems here are a lack of oversight, and also a lack of financial incentive to avoid defaulting in the very long term (as a "mortal" investor, at some point you are going to cash out).
Thinking about the 401k, you mention the S&P500 index, but there are thousands of indices. There could be an S&P500 "proper oversight" index, that filters the S&P500 by some oversight metric. If that gives you 200 stocks instead of 500, and that's too little diversification for you, there could also be an MSCI ACWI IMI "proper oversight" variant as well.
Creating an exemption for 401 and pension plans in general could be an option, but TBH many index funds are big investors in companies, and they do often have a say.