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The Problem of Twelve: When a Few Financial Institutions Control Everything
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.
This quiet accumulation in the last few decades represents a dramatic transformation in how the American economy operates—a sea change that few of us have noticed and all of us need to consider. Harvard law professor John Coates forcefully calls our attention to what is sure to be one of the major political and economic issues of our time.
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.
This quiet accumulation in the last few decades represents a dramatic transformation in how the American economy operates—a sea change that few of us have noticed and all of us need to consider. Harvard law professor John Coates forcefully calls our attention to what is sure to be one of the major political and economic issues of our time.
190 pages, Paperback
Published August 15, 2023
55 people are currently reading
629 people want to read
About the author
John Coates
63 books3 followersLibrarian Note: There is more than one author with this name on GR. This profile might contain books by multiple authors with this name.
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Displaying 1 - 18 of 18 reviews
March 12, 2024
I did learn a lot from reading this one, which is my usual metric for rating nonfiction, but I'm also aware that a lot went clean over my head. Maybe I just didn't have enough baseline knowledge to come into this one. All the stuff with index funds and ETFs was familiar and interesting, but I wasn't at all equipped to follow the private equity half of the book. (Which I guess I shouldn't be too hard on myself for that, considering private equity's whole business model is based upon secrecy and not disclosing things to the public).
The idea that index funds and private equity firms are simultaneously attacked by politicians on either end of the spectrum, but also exert too much influence on the economy despite actively trying not to draw too much attention on themselves was an interesting argument to make. And for what it's worth, I mostly bought into it; it feels like the world's most expensive tightrope balancing act is happening in the background of everyday life and we're all ignoring these titans of finance.
This is the second book I've read in this Columbia Global Reports series and I like the "history of the problem -> current/modern-day effects of the policy problem -> potential policy solutions" format. Even if I don't agree with what's rolled out at the end, I do appreciate that something is offered as a fix instead of the author just saying "we're fucked!" and throwing their hands up in defeat.
The idea that index funds and private equity firms are simultaneously attacked by politicians on either end of the spectrum, but also exert too much influence on the economy despite actively trying not to draw too much attention on themselves was an interesting argument to make. And for what it's worth, I mostly bought into it; it feels like the world's most expensive tightrope balancing act is happening in the background of everyday life and we're all ignoring these titans of finance.
This is the second book I've read in this Columbia Global Reports series and I like the "history of the problem -> current/modern-day effects of the policy problem -> potential policy solutions" format. Even if I don't agree with what's rolled out at the end, I do appreciate that something is offered as a fix instead of the author just saying "we're fucked!" and throwing their hands up in defeat.
January 12, 2024
I enjoy reading CGR books, especially when they're about topics I'm interested in professionally. They're generally concise and focused. The book was at its best providing me with background and context. It became a bit derivitave as a petty airing of grievances. I don't feel it will drive policy discourse forward.
This was an interesting read because it is an interesting topic to me. I have been a pension fund trustee for the last half-decade, so would consider myself somewhat well-versed in these issues. Further, I would consider myself generally politically predisposed to agree with reformist arguments.
The index fund criticism felt unorganized. I was expecting an exploration of the theory of "universal owners" undermining the efficient management of individual companies, or perhaps a look at the "Big 4" oligopoly. Instead, I walked away feeling grateful for my index fund overlords doing the work which Congress cannot.
Maybe I'm "PE-pilled" in my professional role, but many of the criticisms of that industry didn't land for me either. PE, as I understand the industry, is frequently about control, not necessarily avoiding regulation. The latter is a nice ancillary benefit. Control of these companies was barely mentioned as a motive for LBO's and the industry writ large.
As the author notes, "private equity" has been around for a while. The phrase is used more frequently now because LBO's as an industrial complex adopted the branding. "PE" as a general concept is probably the most critical component of business formation that exists. Not every company has to be public.
Author spends plenty of time discussing how "PE isn't really private", because it's investors are frequently public institutions which represent many millions of people and contributions within. Those public contributions do have consent of delegation, and the structures of defined benefit plans create a "lock up". And yet, the parallel concept for index funds goes unexamined: portable, segregated defined contribution funds, managed ostensibly on behalf of individual investors, have their economic voting power co-opted by the big index fund governance teams. Without much input from those individuals investors, because it is rational for individual investors to not vote their proxies!
I feel less grateful for my Private Equity overlords after having read this book, but I never felt much appreciation for them to begin with. They're the Masters of Our Universe, and we can only hope to contain them with piddly disclosure regulations. A call to arms!
Edit: I talked to my wife about my thoughts on this book and after hearing me discuss it, she demanded I drop my rating from 3-stars to 2-stars.
This was an interesting read because it is an interesting topic to me. I have been a pension fund trustee for the last half-decade, so would consider myself somewhat well-versed in these issues. Further, I would consider myself generally politically predisposed to agree with reformist arguments.
The index fund criticism felt unorganized. I was expecting an exploration of the theory of "universal owners" undermining the efficient management of individual companies, or perhaps a look at the "Big 4" oligopoly. Instead, I walked away feeling grateful for my index fund overlords doing the work which Congress cannot.
Maybe I'm "PE-pilled" in my professional role, but many of the criticisms of that industry didn't land for me either. PE, as I understand the industry, is frequently about control, not necessarily avoiding regulation. The latter is a nice ancillary benefit. Control of these companies was barely mentioned as a motive for LBO's and the industry writ large.
As the author notes, "private equity" has been around for a while. The phrase is used more frequently now because LBO's as an industrial complex adopted the branding. "PE" as a general concept is probably the most critical component of business formation that exists. Not every company has to be public.
Author spends plenty of time discussing how "PE isn't really private", because it's investors are frequently public institutions which represent many millions of people and contributions within. Those public contributions do have consent of delegation, and the structures of defined benefit plans create a "lock up". And yet, the parallel concept for index funds goes unexamined: portable, segregated defined contribution funds, managed ostensibly on behalf of individual investors, have their economic voting power co-opted by the big index fund governance teams. Without much input from those individuals investors, because it is rational for individual investors to not vote their proxies!
I feel less grateful for my Private Equity overlords after having read this book, but I never felt much appreciation for them to begin with. They're the Masters of Our Universe, and we can only hope to contain them with piddly disclosure regulations. A call to arms!
Edit: I talked to my wife about my thoughts on this book and after hearing me discuss it, she demanded I drop my rating from 3-stars to 2-stars.
January 8, 2024
This book discusses two quite interesting topic: Index Funds and Private Equity firms. While one is public, the other is opaque and private making it hard to discern the impact they have on society and the extent of their reach.
I personally feel that these are very interesting topics that I never really thought to question. Index funds more so than PE firms as they as just so prevalent in investing 101 that they seem to always be there. But of course, as most things go in our capitalistic society, corporations somehow were able to find ways to leverage the publics money and use it as sway in governments and policy making.
This book debunked a lot of the tactics used by these very intelligent asset managers in an easy to understand way. One critique I have is that this book feels a bit disorganized jumping from Index Funds to Private Equity. Due to the title, I was expecting something more in line of lists of companies. But overall an educational read.
Blog: http://literaturesandmovies.com
I personally feel that these are very interesting topics that I never really thought to question. Index funds more so than PE firms as they as just so prevalent in investing 101 that they seem to always be there. But of course, as most things go in our capitalistic society, corporations somehow were able to find ways to leverage the publics money and use it as sway in governments and policy making.
This book debunked a lot of the tactics used by these very intelligent asset managers in an easy to understand way. One critique I have is that this book feels a bit disorganized jumping from Index Funds to Private Equity. Due to the title, I was expecting something more in line of lists of companies. But overall an educational read.
Blog: http://literaturesandmovies.com
July 30, 2024
Interesting, short summary of the potential damage of private equity and the big four index providers do to the public markets and corporations held in those markets. The warning being the true shareholders are not aligned with those ultimately with money on the line. I felt it was better described via podcast than necessarily laid out here in the book.
April 12, 2025
The most powerful person in a corporation isn’t its CEO. It’s the CEO of the company that manages the index fund or private equity fund that invests in that corporation on behalf of its customers. I never considered how much influence these fund managers have over an individual corporation’s ESG/DEI policies and political contributions, but looking back it should have been obvious.
Read
March 5, 2025Great book on corporate governance. I felt the book was easy to read, but my initial recommender warned that the book was written for Harvard MBA students and some other goodreads comments state that many concepts went over their heads. Many commenters seemed to incorrectly convince themselves they understood the book while many of the nuance and main ideas clearly went over their heads: even those who claimed they worked in the field.
Regardless, the book was very well argued and I could not find many — if any — holes in Coates’ reasoning. The book focuses on voting consolidation in the hands of a small number of index funds and the pseudo-private nature of private equity. I had not considered before the corporate governance issues with index funds as they are typically a great means for the public to invest cheaply and more effectively (because unlike other areas of life, you usually get more for the less you pay for investing), getting around many of the Wall Street Charlestons who are better at raising money and getting a bigger piece of the pie than they are at making a larger pie. However, there is a salient point in how this consolidation of voting power in a few institutions is hurtful to the long term health of our democratic system.
The private equity critique — that these institutions are raising a lot of money from the public rather than wealthy investors — is beyond salient and something I was not previously aware of. Having the figures of how much of PE is now mostly institutional investment money (money that comes from every day’s people’s pensions and retirement accounts) is staggering and completely dismantles any argument of how these PE firms should be allowed to get around the regulatory transparency required for public companies. Their argument that they are only investing “smart money” is clearly mush.
I do not think this book is a complete explanation of the corporate governance problems of PE — not even close — but it doesn’t have to be. It brings a new perspective I have not heard anywhere else and makes salient critiques. The author is not a revolutionary and writes/thinks pragmatically.
Regardless, the book was very well argued and I could not find many — if any — holes in Coates’ reasoning. The book focuses on voting consolidation in the hands of a small number of index funds and the pseudo-private nature of private equity. I had not considered before the corporate governance issues with index funds as they are typically a great means for the public to invest cheaply and more effectively (because unlike other areas of life, you usually get more for the less you pay for investing), getting around many of the Wall Street Charlestons who are better at raising money and getting a bigger piece of the pie than they are at making a larger pie. However, there is a salient point in how this consolidation of voting power in a few institutions is hurtful to the long term health of our democratic system.
The private equity critique — that these institutions are raising a lot of money from the public rather than wealthy investors — is beyond salient and something I was not previously aware of. Having the figures of how much of PE is now mostly institutional investment money (money that comes from every day’s people’s pensions and retirement accounts) is staggering and completely dismantles any argument of how these PE firms should be allowed to get around the regulatory transparency required for public companies. Their argument that they are only investing “smart money” is clearly mush.
I do not think this book is a complete explanation of the corporate governance problems of PE — not even close — but it doesn’t have to be. It brings a new perspective I have not heard anywhere else and makes salient critiques. The author is not a revolutionary and writes/thinks pragmatically.
June 15, 2024
This is a beginners guide to index funds and private equity funds and the dangers that they can pose through having come to control very large parts of our economy. At first it isn't intuitively obvious why an index fund would cause any problems, because by its nature it is passive - a pretermined bundle of stocks that track the S&P 500 or some similar broad based index. There is no way to enhance performance or get big bonuses for the managers by buy/sell decisions or even by timing, but of course what happens is that by becoming major shareholders in the index companies they have an influence over the corporations that they hold and can push them in good or bad directions. I can see how some additional regulation and some further disclosure rules could be helpful, but I wasn't able to see where there is any big problem here.
Private equity funds are a different kettle of fish. They are secretive, have a history of involvement in a variety of shady practices, and they probably contribute little to a vigorous and stable economy. Much of what they do is simply churn, taking from the poor to give to the rich. I do see some value in a class of investors who have a somewhat longer focus than the next quarterly report. Private equity funds may make investments with a five year outlook, and that's a good thing, but if it's five years of firing people and senseless recombinations and restructuring for optics that the stock market likes better then so what. Let's start as Mr. Coates suggests in shining a bright light of disclosure on these people and after we have all been able to see how they run for a few years,we can think about whether other regulations are in order.
Private equity funds are a different kettle of fish. They are secretive, have a history of involvement in a variety of shady practices, and they probably contribute little to a vigorous and stable economy. Much of what they do is simply churn, taking from the poor to give to the rich. I do see some value in a class of investors who have a somewhat longer focus than the next quarterly report. Private equity funds may make investments with a five year outlook, and that's a good thing, but if it's five years of firing people and senseless recombinations and restructuring for optics that the stock market likes better then so what. Let's start as Mr. Coates suggests in shining a bright light of disclosure on these people and after we have all been able to see how they run for a few years,we can think about whether other regulations are in order.
November 11, 2023
There is an interesting little book in here, about the transformation of the leveraged buy-out industry of the Barbarians at the Gate era into the private equity behemoth of today. This little book is blended, for reasons I can’t quite discern, with some observations about index funds, also quite interesting in their own right. The two topics don’t have much to do with each other except for the fact that both industries are dominated by a few small players. This would’ve been a lot better if it had focused on just one topic.
May 16, 2025
this is one surprisingly good book covering both index funds and private equity. I have been wanting to know more about PE but neither my work related nor good books I found. this book probably doesn't cover deep knowledge about either but its a good and short reading. not sure about the last part of the book, doesn't seem to be necessary
September 6, 2023
A quick read that is accesible to non-finance professionals but still thorough enough to benefit financiers. Interesting, well-researched, and thoughtful, this book gives great insight into where we are and how we got here and theorizes solutions to mitigate the ongoing financial problem of 12
April 16, 2024
I had anticipated a more thorough analysis of such a remarkable lawyer. Ultimately, this book could have been condensed into a WSJ column or expanded into a 700-page tome (there was ample opportunity to delve deeper, especially considering the expertise of someone like Mr. Coates.
September 10, 2025
A provocative and thoughtful book with an interesting thesis. Some of the bits on private equity are slightly sweeping, but otherwise a fair and balanced book that proposes realistic solutions. Inspired a case I'm writing for my degree.
August 25, 2023
Well done. Lots of interesting up to date info on private equity and index funds.
March 29, 2024
explains how/why 1) Index Funds and 2) PE Firms have taken over all money
January 20, 2025
3.7 ⭐️
Very technical and informative, especially the private equity portions. I enjoyed it overall but I thought the “how to solve this issue” was very wishful at best.
Very technical and informative, especially the private equity portions. I enjoyed it overall but I thought the “how to solve this issue” was very wishful at best.
August 5, 2025
While the book offers interesting insights into private equity firms and index funds, its explanations felt somewhat chaotic at times. I personally found the topic interesting and appreciated the opportunity to learn more, so I think it was a good choice. However, for readers without a background in finance or economics, it may be a challenging read. I liked that it was concise, but the complexity of the topics, particularly in the final section on solutions, could have been a more in-depth discussion. The proposed solutions felt quite broad and could have been developed further.
July 14, 2024
Important book that filled in some of the gaps in my knowledge of how we got here, and who is influencing the financial decisions/economies. The type of book where I had to read most sentences twice & I will need to re-read it.
June 4, 2025
Great read. I think Coates maybe even slightly underestimates the impact private equity’s destruction of small business has on communities, but in any case this was really thorough while also easy to digest.
Displaying 1 - 18 of 18 reviews