(c) 2010 F. Bruce Abel
Elders of Wall Street Favor More Regulation. And these men are respected and, to my way of thinking, untainted.
"Volker-Plus," they say, or so says this New York Times article of yesterday.
http://www.nytimes.com/2010/02/17/business/17volcker.html?hp
Showing posts with label bogle of vanguard. Show all posts
Showing posts with label bogle of vanguard. Show all posts
Wednesday, February 17, 2010
Wednesday, April 15, 2009
Morgenson -- John C. Bogle
He Doesn’t Let Money Managers Off the Hook
By GRETCHEN MORGENSON
Published: April 11, 2009
EVERY once in a while, if only for sanity’s sake, it is wise to leave our bankrupt era behind and seek out a bit of wisdom from a moral authority. It’s a challenging exercise, given that so many formerly stellar reputations are now shipwrecked and that all those once-smart guys and gals have been reduced to bull-market geniuses.
Times Topics: Gretchen Morgenson
And yet there are a few voices of reason and integrity left in this upside-down world. One is John C. Bogle’s. He is the founder of the Vanguard Group, an author and an investor advocate. With almost 58 years in the money management business, Mr. Bogle has kept his reputation intact. That alone sets him apart.
But Mr. Bogle is also worth talking to because he is a thinker, a sort of financial philosopher. And earlier this month he lectured at Columbia University about, not surprisingly, the financial crisis and its causes. What he said was illuminating.
In his talk, he cited the usual suspects: borrowers, lenders, securitizers, regulators and Wall Street traders. But he also identified one group that hasn’t been singled out for shame: the institutional money managers that allowed the nation’s financial companies to amass enormous risks on their balance sheets and pay gigantic compensation based on false profits. The big funds let this happen without uttering a word.
“When I read the causes of the recent unpleasantness, I haven’t seen one single person who has said that the owners of these corporations, including the banking corporations, didn’t seem to give a damn about how they were being run,” Mr. Bogle said in an interview last week. “We own all this stock but we pretty much do nothing.”
That “we” he talks about really refers to those in charge of our retirement accounts, pensions and savings: mutual funds and professional money management firms that, as institutional investors, control 70 percent of the shares of large public companies today.
Such an outsize stake means that the institutions wield great power and influence over corporate America. Yet, as Mr. Bogle points out, few institutions have played an active role in board structure and governance, director elections, executive compensation, stock options proxy proposals or dividend policies at the companies they own.
“Given their forbearance as corporate citizens,” Mr. Bogle said, “these managers arguably played a major role in allowing the managers of our public corporations to exploit the advantages of their own agency.”
INDEED, while many still believe that the American way of investing makes ours an ownership society, Mr. Bogle says we live in an agency society, one in which we rely on agents — mutual fund managers, pension fund managers — to make our investment choices for us.
An ownership society was an accurate depiction of where this country was 50 years ago, Mr. Bogle says. Not today.
And he says that the trust we have placed in these agents is undeserved. In his view, the agents have failed to serve their clients — mutual fund shareholders, pension beneficiaries and long-term investors; instead, the agents have served themselves.
Consider fees. Charges levied on mutual fund investors are much higher than those that the identical firms exact on pension clients, for example. The three largest money managers, Mr. Bogle pointed out, charged an average fee rate of 0.08 percent to pension customers. This compares with 0.61 percent charged to fund shareholders.
Money managers also haven’t done the kind of due diligence that might have protected their investors from titanic losses. “How could so many highly skilled, highly paid securities analysts and researchers have failed to question the toxic-filled, leveraged balance sheets of Citigroup and other leading banks and investment banks?” Mr. Bogle asked.
Keep in mind that these failures have occurred in spite of the Investment Company Act of 1940, which states that “mutual funds should be managed and operated in the best interests of their shareholders, rather than in the interests of advisers.”
In the face of all this, Mr. Bogle suggests that we force our agents to relearn what being a fiduciary means. A fiduciary, these managers seem to have forgotten, acts for the sole benefit and interest of another. We need to replace the agency society with a fiduciary society, he argues.
To achieve this, Mr. Bogle says, the government must apply a federal standard of fiduciary duty to institutional money managers. This would force them to use their stock holdings as a cudgel, to demand that directors and executives of corporations honor their responsibilities to their owners.
“We need Congress to pass a law establishing the basic principle that money managers are there to serve their shareholders,” Mr. Bogle said. “And the second part of the demand is that fiduciaries act with due diligence and high professional standards. That doesn’t seem to be too much to ask.”
Some money management firms are publicly traded themselves, and Mr. Bogle says that those firms offer an added layer of deep and serious conflicts because executives running them try to serve two masters: their shareholders and their fund clients.
Such conflicts can be resolved only by separating the money management units from the larger, publicly traded firms, Mr. Bogle said. Under such a plan, the Deutsche Bank Group, for example, would spin off DWS Investments, its mutual fund unit, or Sun Life of Canada would divest itself of MFS Investment Management.
And with a fiduciary law in place, Mr. Bogle believes, money managers would be far more responsible about corporate citizenship than they are now.
“The funds should demand with all their voting power that the companies they own are putting the interests of their shareholders first,” he said. “This would have implications for executive compensation, nominating directors, and other corporate governance matters.”
Mr. Bogle doesn’t think that the mutual fund industry will rush to embrace his idea. The powerhouses in the business have battled fiercely against attempts to shine sunlight on their practices or rid their operations of conflicts.
But as our current financial crisis has made clear, there are significant problems in the structure of the mutual fund business, and now is the perfect time to solve them.
“This will create a lot of opposition, but it is not a regulatory solution, it is a principles-based solution,” Mr. Bogle said. “We would gradually develop a series of decisions about how these things fit into the overall fabric of investment management. Is it easy to articulate? No, but is the principle easy to understand? Absolutely. Shareholders come first.”
Rescue Plan For Funds Will Come At a Price (September 20, 2008)
MUTUAL FUNDS REPORT; Why Your Fund Beat the Average, but You Didn't (October 8, 2006)
MARKET PLACE; Real Money Rides on an Argument About the Fundamentals of Investing (August 15, 2006)
Fund Managers May Have Some Pay Secrets, Too (April 16, 2006)
Bogle, John C Get E-Mail Alerts
MOST POPULAR - BUSINESS
E-Mailed
Blogged
Promising Test for Dendreon’s Prostate Cancer Drug
More Hotels Facing an Uncertain Future
U.S. Planning to Reveal Data on Health of Top Banks
News Analysis: Obama Stands Firm on a Sweeping Agenda
Harder-Edged Warnings About Britain’s Economy
Recession Pain, Even in Palm Beach
So Botox Isn’t Just Skin Deep
Media Executives Plan Online Service to Charge for Content
Tech Recruiting Clashes With Immigration Rules
Goldman Using Share Sale to Return Bailout Funds Go to Complete List »
Crisis Altering Wall Street as Big Banks Lose Top Talent
'Surgical' Bankruptcy Possible for G.M.
Banks Holding Up in Tests, but May Still Need Aid
China Slows Purchases of U.S. and Other Foreign Bonds
Obama See 'Glimmers of Hope' for the Economy
U.S. Imagines the Bailout as an Investment Tool
In Boston, Paper's Peril Hits a Chord
In Switch, Magazines Think About Raising Prices
Boston Globe Surprised by Size of Demand for Cuts
Cities Turn to Fees to Fill Budget Gaps Go to Complete List »
By GRETCHEN MORGENSON
Published: April 11, 2009
EVERY once in a while, if only for sanity’s sake, it is wise to leave our bankrupt era behind and seek out a bit of wisdom from a moral authority. It’s a challenging exercise, given that so many formerly stellar reputations are now shipwrecked and that all those once-smart guys and gals have been reduced to bull-market geniuses.
Times Topics: Gretchen Morgenson
And yet there are a few voices of reason and integrity left in this upside-down world. One is John C. Bogle’s. He is the founder of the Vanguard Group, an author and an investor advocate. With almost 58 years in the money management business, Mr. Bogle has kept his reputation intact. That alone sets him apart.
But Mr. Bogle is also worth talking to because he is a thinker, a sort of financial philosopher. And earlier this month he lectured at Columbia University about, not surprisingly, the financial crisis and its causes. What he said was illuminating.
In his talk, he cited the usual suspects: borrowers, lenders, securitizers, regulators and Wall Street traders. But he also identified one group that hasn’t been singled out for shame: the institutional money managers that allowed the nation’s financial companies to amass enormous risks on their balance sheets and pay gigantic compensation based on false profits. The big funds let this happen without uttering a word.
“When I read the causes of the recent unpleasantness, I haven’t seen one single person who has said that the owners of these corporations, including the banking corporations, didn’t seem to give a damn about how they were being run,” Mr. Bogle said in an interview last week. “We own all this stock but we pretty much do nothing.”
That “we” he talks about really refers to those in charge of our retirement accounts, pensions and savings: mutual funds and professional money management firms that, as institutional investors, control 70 percent of the shares of large public companies today.
Such an outsize stake means that the institutions wield great power and influence over corporate America. Yet, as Mr. Bogle points out, few institutions have played an active role in board structure and governance, director elections, executive compensation, stock options proxy proposals or dividend policies at the companies they own.
“Given their forbearance as corporate citizens,” Mr. Bogle said, “these managers arguably played a major role in allowing the managers of our public corporations to exploit the advantages of their own agency.”
INDEED, while many still believe that the American way of investing makes ours an ownership society, Mr. Bogle says we live in an agency society, one in which we rely on agents — mutual fund managers, pension fund managers — to make our investment choices for us.
An ownership society was an accurate depiction of where this country was 50 years ago, Mr. Bogle says. Not today.
And he says that the trust we have placed in these agents is undeserved. In his view, the agents have failed to serve their clients — mutual fund shareholders, pension beneficiaries and long-term investors; instead, the agents have served themselves.
Consider fees. Charges levied on mutual fund investors are much higher than those that the identical firms exact on pension clients, for example. The three largest money managers, Mr. Bogle pointed out, charged an average fee rate of 0.08 percent to pension customers. This compares with 0.61 percent charged to fund shareholders.
Money managers also haven’t done the kind of due diligence that might have protected their investors from titanic losses. “How could so many highly skilled, highly paid securities analysts and researchers have failed to question the toxic-filled, leveraged balance sheets of Citigroup and other leading banks and investment banks?” Mr. Bogle asked.
Keep in mind that these failures have occurred in spite of the Investment Company Act of 1940, which states that “mutual funds should be managed and operated in the best interests of their shareholders, rather than in the interests of advisers.”
In the face of all this, Mr. Bogle suggests that we force our agents to relearn what being a fiduciary means. A fiduciary, these managers seem to have forgotten, acts for the sole benefit and interest of another. We need to replace the agency society with a fiduciary society, he argues.
To achieve this, Mr. Bogle says, the government must apply a federal standard of fiduciary duty to institutional money managers. This would force them to use their stock holdings as a cudgel, to demand that directors and executives of corporations honor their responsibilities to their owners.
“We need Congress to pass a law establishing the basic principle that money managers are there to serve their shareholders,” Mr. Bogle said. “And the second part of the demand is that fiduciaries act with due diligence and high professional standards. That doesn’t seem to be too much to ask.”
Some money management firms are publicly traded themselves, and Mr. Bogle says that those firms offer an added layer of deep and serious conflicts because executives running them try to serve two masters: their shareholders and their fund clients.
Such conflicts can be resolved only by separating the money management units from the larger, publicly traded firms, Mr. Bogle said. Under such a plan, the Deutsche Bank Group, for example, would spin off DWS Investments, its mutual fund unit, or Sun Life of Canada would divest itself of MFS Investment Management.
And with a fiduciary law in place, Mr. Bogle believes, money managers would be far more responsible about corporate citizenship than they are now.
“The funds should demand with all their voting power that the companies they own are putting the interests of their shareholders first,” he said. “This would have implications for executive compensation, nominating directors, and other corporate governance matters.”
Mr. Bogle doesn’t think that the mutual fund industry will rush to embrace his idea. The powerhouses in the business have battled fiercely against attempts to shine sunlight on their practices or rid their operations of conflicts.
But as our current financial crisis has made clear, there are significant problems in the structure of the mutual fund business, and now is the perfect time to solve them.
“This will create a lot of opposition, but it is not a regulatory solution, it is a principles-based solution,” Mr. Bogle said. “We would gradually develop a series of decisions about how these things fit into the overall fabric of investment management. Is it easy to articulate? No, but is the principle easy to understand? Absolutely. Shareholders come first.”
Rescue Plan For Funds Will Come At a Price (September 20, 2008)
MUTUAL FUNDS REPORT; Why Your Fund Beat the Average, but You Didn't (October 8, 2006)
MARKET PLACE; Real Money Rides on an Argument About the Fundamentals of Investing (August 15, 2006)
Fund Managers May Have Some Pay Secrets, Too (April 16, 2006)
Bogle, John C Get E-Mail Alerts
MOST POPULAR - BUSINESS
E-Mailed
Blogged
Promising Test for Dendreon’s Prostate Cancer Drug
More Hotels Facing an Uncertain Future
U.S. Planning to Reveal Data on Health of Top Banks
News Analysis: Obama Stands Firm on a Sweeping Agenda
Harder-Edged Warnings About Britain’s Economy
Recession Pain, Even in Palm Beach
So Botox Isn’t Just Skin Deep
Media Executives Plan Online Service to Charge for Content
Tech Recruiting Clashes With Immigration Rules
Goldman Using Share Sale to Return Bailout Funds Go to Complete List »
Crisis Altering Wall Street as Big Banks Lose Top Talent
'Surgical' Bankruptcy Possible for G.M.
Banks Holding Up in Tests, but May Still Need Aid
China Slows Purchases of U.S. and Other Foreign Bonds
Obama See 'Glimmers of Hope' for the Economy
U.S. Imagines the Bailout as an Investment Tool
In Boston, Paper's Peril Hits a Chord
In Switch, Magazines Think About Raising Prices
Boston Globe Surprised by Size of Demand for Cuts
Cities Turn to Fees to Fill Budget Gaps Go to Complete List »
Thursday, November 13, 2008
Battle for the Soul of Capitalism
Let's start with one of my few remaining heroes in the investing world, Cramer and that Pimco guy being the other(s) that comes readily (and not so readily) to mind -- oh, yeah, Bill Gross, and Jim Grant, Marty Zweig having retired long ago and Bernie Schaeffer having gone commercial a couple of years ago:
Bogle:
http://books.google.com/books?id=jjPX-wB8KTcC&dq=bogle+vanguard&pg=PP1&ots=PChVNMPdPX&source=in&sig=Qm8UOn0me8g-FRVtjQCb2LOFxos&hl=en&sa=X&oi=book_result&resnum=14&ct=result#PPP1,M1
Bogle:
http://books.google.com/books?id=jjPX-wB8KTcC&dq=bogle+vanguard&pg=PP1&ots=PChVNMPdPX&source=in&sig=Qm8UOn0me8g-FRVtjQCb2LOFxos&hl=en&sa=X&oi=book_result&resnum=14&ct=result#PPP1,M1
Monday, November 10, 2008
Bogle of Vanguard
I saw this summarized last week but forgot to post it. John Bogle is wise, wise, wise. Wise cubed.
Fix how much percentage you want in stocks and what percentage you want in bonds. Buy index funds for the stock portion and, if your horizon is five years, don't look for five years.
Tuesday, July 22, 2008
Morgenson Yesterday
Advertise on NYTimes.com
Fair Game
Borrowers and Bankers: A Great Divide
writePost();
new_york_times:http://www.nytimes.com/2008/07/20/business/economy/20gret.html
By GRETCHEN MORGENSON
Published: July 20, 2008
THE credit crisis has exposed and worsened a dangerous and deepening divide in this country between a vast number of average borrowers and a fairly elite slice of corporations, banks and executives enriched by the mortgage mania.
Borrowers who are in trouble on their mortgages have seen their government move slowly — or not all — to help them. But banks and the executives who ran them are quickly deemed worthy of taxpayer bailouts.
On the ground, this translates into millions of troubled borrowers, left to work through their problems with understaffed, sometimes adversarial loan servicing companies. If they get nowhere, they lose their homes.
Taxpayers, meanwhile, are asked to stand by with money to inject into Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants, should they need propping up if loan losses balloon.
The message in this disconnect couldn’t be clearer. Borrowers should shoulder the consequences of signing loan documents they didn’t understand, but with punishing terms that quickly made the loans unaffordable. But for executives and directors of the big companies who financed these loans, who grew wealthy while the getting was good, the taxpayer is coming to the rescue.
To be sure, bailouts are becoming increasingly necessary in our highly leveraged, interconnected financial world. One obvious reason that huge companies are not allowed to fail is that so many people are hurt by such debacles. If a family files for bankruptcy or loses a home, the pain still hurts, but its emotional and financial ripples are confined.
And in the heat of a financial crisis, there is often little time to think through who deserves a bailout and who does not. In especially dire circumstances, leaders have no choice but to rescue companies. Think about Bear Stearns: even though it was relatively small in size for a brokerage firm, its demise had to be averted because of a possible domino effect that might have also taken down its many trading partners. In that multibillion-dollar bailout, it was Bear’s big and wealthy counterparties who benefited.
Fannie Mae and Freddie Mac, however, present an exponentially larger problem. They are unquestionably too big to fail. With $5.2 trillion in mortgages either on their books or guaranteed by them, their bailout was completely predictable. If those companies had been left for road kill, the mortgage market would have ground to a halt and a financial conflagration of historic and devastating proportions would have resulted.
Not all big banks get bailouts, of course. IndyMac Bank, one of the nation’s largest savings and loans, was closed down by regulators last week.
Nevertheless, we are in dangerous territory today where bailouts are concerned, and not only because they feed Americans’ suspicions that only the rich and powerful get help in our country.
Bailouts are also ticklish affairs because of the precarious state of our economy. As Americans are being asked to shore up reckless financial companies, they are also being punished by high oil prices, rocketing food costs and a stomach-churning slide in the buying power of their currency, the once-almighty dollar.
So asking Main Street to bail out Wall Street leads to this inevitable question: Weren’t the financial folks the ones who helped create the mess we’re in?
Yet last week, regulators gave a nice boost to Wall Street and other members of the financial club. Christopher Cox, the chairman of the Securities and Exchange Commission, devised an emergency rule change for traders wishing to sell short the shares of 19 financial companies, including Lehman Brothers, Merrill Lynch, Fannie Mae, Bank of America and Citigroup. The rule states that if you haven’t borrowed the shares you intend to sell short, you can’t make the trade. It extends until July 29.
There are several interesting aspects to this change. First, if the S.E.C. believes that shorting without previously borrowing shares is a problem in the market, why not apply the rule to all stocks? After seeing many of the 19 companies’ stocks shoot higher after the plan was announced, executives at General Electric, the American International Group and MBIA, companies whose shares have also been pummeled in the financial crisis, must surely feel left out of the fun.
Once again, this emergency action smacks of the regulatory responses of recent years: do nothing to curb the deal-making mania while it is occurring, but when the rout comes along, hurry up and rein it in.
Of course, people prefer rising stock prices to declining ones. Wouldn’t it be wonderful if shares never fell? But such actions call into question the claim that ours is a free-market system. More and more, our version of free markets holds that they are free only when asset values rise. When they fall, the markets must be managed.
HERE is a question: Might not the routs, which inevitably follow the manias, be less painful if things were not allowed to get wild and crazy on the upside? Might not the American people be better off with regulators who curb market enthusiasm — whether in the form of errant lending or voracious, ill-considered deal making — when it reaches manic levels, to protect against the free fall, and the bailouts, that ensue?
No, no, no — perish the thought, especially when the taxpayer is there to pick up the bill.
Which returns us to the dispiriting divide between those who receive help and those who don’t.
“The banks are too big to fail and the man in the street is too small to bail,” said John C. Bogle, the founder of the Vanguard Group, the mutual funds giant, who is a philosopher of finance.
Mr. Bogle is working on his seventh book, titled “Enough,” which is scheduled to be published in November. He said he was disturbed by the extreme speculation that spread into the entire economy during the housing boom and that now threatens both consumers and investors.
“I predicted last summer that this would be my 10th bear market,” he said. “But this one is different. The others were more marketlike, reflecting problems in the market, not problems in the society and the economy as this one does. As a result, we’re in for a much more troublesome era than after the other big bear markets.”
Mr. Bogle, like most investors, is an optimist at heart. But he believes that we must work to correct the growing imbalances in our country. “We Americans are one lucky bunch,” he said. “But, let’s face the truth. While the Declaration of Independence assures us that ‘all men are created equal,’ we’d best face the fact that we may be created equal but we are born into a society where inequality of family, of education and, yes, even opportunity begins as soon as we are born.”
“But the Constitution demands more,” he adds. “We the people are enjoined to form a more perfect union, to establish justice, ensure domestic tranquillity, and to promote the general welfare and to secure the blessings of liberty to ourselves and our posterity. So it’s up to each of us to summon our unique genius, our own power and our own personal magic to restore these values in today’s imbalanced society.”
Not a bad idea, bringing a little 18th-century enlightenment to this moment of 21st-century gloom.
Fair Game
Borrowers and Bankers: A Great Divide
writePost();
new_york_times:http://www.nytimes.com/2008/07/20/business/economy/20gret.html
By GRETCHEN MORGENSON
Published: July 20, 2008
THE credit crisis has exposed and worsened a dangerous and deepening divide in this country between a vast number of average borrowers and a fairly elite slice of corporations, banks and executives enriched by the mortgage mania.
Borrowers who are in trouble on their mortgages have seen their government move slowly — or not all — to help them. But banks and the executives who ran them are quickly deemed worthy of taxpayer bailouts.
On the ground, this translates into millions of troubled borrowers, left to work through their problems with understaffed, sometimes adversarial loan servicing companies. If they get nowhere, they lose their homes.
Taxpayers, meanwhile, are asked to stand by with money to inject into Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants, should they need propping up if loan losses balloon.
The message in this disconnect couldn’t be clearer. Borrowers should shoulder the consequences of signing loan documents they didn’t understand, but with punishing terms that quickly made the loans unaffordable. But for executives and directors of the big companies who financed these loans, who grew wealthy while the getting was good, the taxpayer is coming to the rescue.
To be sure, bailouts are becoming increasingly necessary in our highly leveraged, interconnected financial world. One obvious reason that huge companies are not allowed to fail is that so many people are hurt by such debacles. If a family files for bankruptcy or loses a home, the pain still hurts, but its emotional and financial ripples are confined.
And in the heat of a financial crisis, there is often little time to think through who deserves a bailout and who does not. In especially dire circumstances, leaders have no choice but to rescue companies. Think about Bear Stearns: even though it was relatively small in size for a brokerage firm, its demise had to be averted because of a possible domino effect that might have also taken down its many trading partners. In that multibillion-dollar bailout, it was Bear’s big and wealthy counterparties who benefited.
Fannie Mae and Freddie Mac, however, present an exponentially larger problem. They are unquestionably too big to fail. With $5.2 trillion in mortgages either on their books or guaranteed by them, their bailout was completely predictable. If those companies had been left for road kill, the mortgage market would have ground to a halt and a financial conflagration of historic and devastating proportions would have resulted.
Not all big banks get bailouts, of course. IndyMac Bank, one of the nation’s largest savings and loans, was closed down by regulators last week.
Nevertheless, we are in dangerous territory today where bailouts are concerned, and not only because they feed Americans’ suspicions that only the rich and powerful get help in our country.
Bailouts are also ticklish affairs because of the precarious state of our economy. As Americans are being asked to shore up reckless financial companies, they are also being punished by high oil prices, rocketing food costs and a stomach-churning slide in the buying power of their currency, the once-almighty dollar.
So asking Main Street to bail out Wall Street leads to this inevitable question: Weren’t the financial folks the ones who helped create the mess we’re in?
Yet last week, regulators gave a nice boost to Wall Street and other members of the financial club. Christopher Cox, the chairman of the Securities and Exchange Commission, devised an emergency rule change for traders wishing to sell short the shares of 19 financial companies, including Lehman Brothers, Merrill Lynch, Fannie Mae, Bank of America and Citigroup. The rule states that if you haven’t borrowed the shares you intend to sell short, you can’t make the trade. It extends until July 29.
There are several interesting aspects to this change. First, if the S.E.C. believes that shorting without previously borrowing shares is a problem in the market, why not apply the rule to all stocks? After seeing many of the 19 companies’ stocks shoot higher after the plan was announced, executives at General Electric, the American International Group and MBIA, companies whose shares have also been pummeled in the financial crisis, must surely feel left out of the fun.
Once again, this emergency action smacks of the regulatory responses of recent years: do nothing to curb the deal-making mania while it is occurring, but when the rout comes along, hurry up and rein it in.
Of course, people prefer rising stock prices to declining ones. Wouldn’t it be wonderful if shares never fell? But such actions call into question the claim that ours is a free-market system. More and more, our version of free markets holds that they are free only when asset values rise. When they fall, the markets must be managed.
HERE is a question: Might not the routs, which inevitably follow the manias, be less painful if things were not allowed to get wild and crazy on the upside? Might not the American people be better off with regulators who curb market enthusiasm — whether in the form of errant lending or voracious, ill-considered deal making — when it reaches manic levels, to protect against the free fall, and the bailouts, that ensue?
No, no, no — perish the thought, especially when the taxpayer is there to pick up the bill.
Which returns us to the dispiriting divide between those who receive help and those who don’t.
“The banks are too big to fail and the man in the street is too small to bail,” said John C. Bogle, the founder of the Vanguard Group, the mutual funds giant, who is a philosopher of finance.
Mr. Bogle is working on his seventh book, titled “Enough,” which is scheduled to be published in November. He said he was disturbed by the extreme speculation that spread into the entire economy during the housing boom and that now threatens both consumers and investors.
“I predicted last summer that this would be my 10th bear market,” he said. “But this one is different. The others were more marketlike, reflecting problems in the market, not problems in the society and the economy as this one does. As a result, we’re in for a much more troublesome era than after the other big bear markets.”
Mr. Bogle, like most investors, is an optimist at heart. But he believes that we must work to correct the growing imbalances in our country. “We Americans are one lucky bunch,” he said. “But, let’s face the truth. While the Declaration of Independence assures us that ‘all men are created equal,’ we’d best face the fact that we may be created equal but we are born into a society where inequality of family, of education and, yes, even opportunity begins as soon as we are born.”
“But the Constitution demands more,” he adds. “We the people are enjoined to form a more perfect union, to establish justice, ensure domestic tranquillity, and to promote the general welfare and to secure the blessings of liberty to ourselves and our posterity. So it’s up to each of us to summon our unique genius, our own power and our own personal magic to restore these values in today’s imbalanced society.”
Not a bad idea, bringing a little 18th-century enlightenment to this moment of 21st-century gloom.
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