The Institutional Investor or The Sophisticated Investor

(c) 2010 F. Bruce Abel



The argument is stated or implied that the "person" on the other side of the Goldman Sachs Abacus investment was Deutsches Bank, an "institutional investor" or "sophisticated investor," or some such. This, in Cramer's view, levels the playing field and renders blame meaningless.


Ohio law, and probably federal and other state law, also distinguishes buyers this way in its Blue Sky Laws, with much less regulation required for new issuances when an institutional investor is the buyer. A bank trust department is deemed sophisticated.


Of course we know that bank trust departments are peopled by ... people. People get all excited, even if it is not their own money. They make the same shortcuts that other humans make. They are impressed by the white-collar investment bankers from New York, etc.


So when we as individuals, or as managers of the municipality's pension fund, etc., place our faith in "institutions" to invest wisely we are just putting "people" in charge.


What we are doing, let's face it, is taking the onus off of ourselves (properly) so that the wife doesn't accuse us of wasting the family assets. But when the trust falls by 40% the wife says not a peep when it is managed by an "institution."