Louis Lowenstein (June 13, 1925 – April 18, 2009), an influential business law professor and former corporate executive who for nearly three decades dissected the excesses of Wall Street and warned of the dangers of short-term investing, died on April 18 at his home in Manhattan. He was 83.
The cause was pancreatic cancer, said his daughter Barbara Pearl.
To some of his former compatriots in the business world, Mr. Lowenstein (pronounced LOW-en-steen) was a gadfly, if not a defector. Before becoming a professor at Columbia, he had been a founding partner of one of New York’s most powerful corporate law firms and later the president of a supermarket conglomerate.
But beginning in 1980, when he joined the Columbia law faculty, he provocatively analyzed the practices of money managers, takeover artists, junk bond dealers and practitioners of leveraged buyouts. His message, in books, op-ed articles and testimony before Congress, was simple: too much speculation and too little long-term investment were undermining American business.
In 1988, Barron’s, the investor’s weekly, said of Mr. Lowenstein: “Merrill Lynch, meet your worst nightmare.”
In 2008, as the credit and subprime mortgage crisis shook the nation, Mr. Lowenstein cited what he considered another major fissure in the financial structure. In his book The Investor’s Dilemma: How Mutual Funds Are Betraying Your Trust and What to Do About It (Wiley), he warned of dangers facing 90 million investors who had entrusted $10 trillion to mutual funds.
“There is a profound conflict of interest built into the industry’s structure,” he wrote, “one that grows out of the fact that the management companies are independently owned, separate from the funds themselves, and managers profit by maximizing the funds under management because their fees are based on assets, not performance.”
According to Mr. Lowenstein’s analysis, the performances of most mutual funds range from dismal to terrible while the managers receive fees regardless of whether the prices of the stocks they select rise or fall.
In 1988, Mr. Lowenstein published What’s Wrong With Wall Street (Addison-Wesley), which, among other criticisms, lambasted the market’s short-term trading schemes.
Investors have forgotten that stock represents part ownership in a business, the book said, adding: “If you buy on that basis, you have made a judgment about that company and its businesses over the long term. No sensible investor would change his mind in a few days or a few weeks.”
Born in Manhattan on June 13, 1925, Mr. Lowenstein was one of three sons of Louis and Ralphina Steinhardt Lowenstein. He was married for 56 years to his wife, the former Helen Udell. Mr. Lowenstein received a bachelor’s degree in business in 1947 and his law degree in 1953, both from Columbia. He then served as a clerk for Judge Stanley H. Fuld of the New York State Court of Appeals.
In 1968, Mr. Lowenstein became a founding partner of Kramer, Lowenstein, Nessen & Kamin (now Kramer Levin Naftalis & Frankel), which soon became one of the major business law firms in New York.
While with the firm, he worked as the merger lawyer for the Supermarkets Operating Company. It later became Supermarkets General, a conglomerate that eventually sold more than $1 billion a year in goods through its divisions, including Pathmark.
In 1978, the company hired Mr. Lowenstein as president. But within two years, the company’s co-founder, Herbert Brody, decided that he wanted to run Supermarkets General instead. Mr. Lowenstein, who had been a lecturer at Columbia since 1976, resigned from the company, accepted a full professorship at the law school and soon began rattling the financial industry.
“Wall Street gets paid for persuading people to change their minds,” he said in 1988. “There are only a certain number of shares of General Motors, and Wall Street gets paid for persuading some people to buy and other people to sell — to play a game of musical chairs.”
In recent years, among his other philanthropic activities, Mr. Lowenstein served as chairman of the Coalition for the Homeless, in New York.
Printed in The New York Times, April 25, 2009.