Set forth below is the text of a comment that I recently put to another blog entry at this site:
How many people are going to prison. Who will be paying you the 500 million?
I’ll offer you my impressions, Anonymous. That’s the best that I can do given the unique circumstances that apply. We have never as a nation been in a situation like this before. These are entirely uncharted waters.
There are millions of good and smart and hard-working people who believe that Buy-and-Hold works and who naturally share that belief with friends and neighbors and co-workers and fellow community members. These people have obviously never done anything wrong and have zero chance of going to prison. I was one of these people myself until the night of August 27, 2002, the night that John Greaney threatened to kill my wife and children if I continued to post honestly on safe withdrawal rates. It was when I saw 200 people endorse his post that I saw how emotional a strategy Buy-and-Hold was and knew that it was not for me.
The next layer down is people who participated at discussion boards at which the Buy-and-Hold Goons employed intimidation tactics to drive away those with an inclination to post honestly about the last 32 years of peer-reviewed academic research and who failed to speak up about it. That’s dishonorable behavior. Those people helped the 11-year cover-up of the errors in the Old School safe withdrawal rate studies in an indirect way. A case could be made that those people were in some small way engaged in an act of financial fraud. But I would be very surprised if any of those people were prosecuted. Prosecutors need to allocate limited resources in an intelligent manner. Limited resources are not going to be directed to people whose only “crime” is that they kept quiet. Those people will not be going to prison.
The next layer down is people who actively participated in the cover-up by putting up intimidation or deception posts but only on a small number of occasions. I believe that no one will be prosecuted for doing this sort of thing on a small numbers of occasions. Again, there are bigger and more important fish to fry.
Going down another layer, we have people who participated in long-running smear campaigns aimed at keeping middle-class investors from learning about the errors in the Old School SWR studies and about the dangers of Buy-and-Hold investing strategies in general. These are the people most likely to be prosecuted, in my assessment. People have sympathy for those who make one or two mistakes. Sympathy wanes when people make a career out of the destruction of human lives. It is to protect ourselves from these sorts of individuals (The Lindauerheads and the Greaney Goons) that as a society we adopted the laws against financial fraud in the first place. I am highly confident that the Lindauerheads and the Greaney Goons will be spending many years in prison cells.
Then we have people like Mike Piper, at the Oblivious Investor blog, and Carl Richards, at the Behavior Gap blog. Both Mike and Carl have done a great deal of top-notch work. They are both friends of mine and they have both been highly complimentary of my work. They’re both smart. They’re both good guys. It pains me to think that there is anything more than a zero chance that either Mike or Carl (or any of the many others in similar circumstances) will be going to prison. Yet it is a stone cold fact that both Mike and Carl (and the many others) provided HUGE help to the 11-year cover-up of the errors in the studies that are in the process of causing millions of middle-class people to suffer failed retirements. They committed the act of financial fraud as that crime is defined in the statute books.
Will Mike and Carl (and the others) go to prison? I don’t feel that I can answer that question. I am too close to all this. I have personal friendships with these people and I naturally hate the thought of seeing my friends carted off to prison cells. On the other hand, I also care about the millions of middle-class people whose lives are in the process of being destroyed. I think it is fair to say that after the next price crash those people are going to be very, very, very angry to learn that the errors in the Old School studies have been public knowledge since the morning of May 13, 2002, and that these people engaged in multiple acts of financial fraud to keep people from learning this. I can with my heart hope that Mike and Carl (and the others) will not go to prison while acknowledging with my head that my heart may not rule the day re this one.
Then we have all the people who have known about the dangers of Buy-and-Hold for many years and kept it zipped because they didn’t want to see their careers destroyed by the Buy-and-Hold Mafia. Rob Arnott reported that, when he asked a convention of academic researchers whether they thought Buy-and-Hold could work, only a tiny number of hands went up. Yet when he asked the same researchers whether they rooted their research in a belief in Buy-and-Hold, nearly every hand in the room shot up in the air. That’s obviously not the way in which academic researchers are supposed to behave. That’s obviously not ethical behavior. I believe that these people will be held to a far higher standard than non-experts. These people are paid to know this stuff. They can’t say “Oh, I haven’t been able to find time over the past 32 years to keep up with any new developments in the field.”
There are thousands of cases of this kind. Shiller published his “revolutionary” (his word) research in 1981. I didn’t come on the scene until the morning of May 13, 2002. I saw intense hostility evidence itself following my first post. So the cover-up had obviously been going on for a long time before I came on the scene. I believe that, following the next crash, we will see all kinds of things come out that we can barely imagine today. I believe that we are going to hear Shiller say that he has been intimidated FOR YEARS. Lots of others will be saying similar things. Until we hear testimony taken under oath on all that has been going on, I don’t think that any of us will be able to make fully informed statements about how many will be going to prison or for how many years.
Finally, there are cases like the cases of my good friends Wade Pfau and Jack Bogle. I love these guys. There would be no Valuation-Informed Indexing if not for the huge contributions of Jack Bogle and there would be no peer-reviewed academic research with my name on it showing millions of middle-class investors how to reduce the risk of stock investing by 70 percent if not for the huge contributions of Wade Pfau. So I am biased.
The other side of the story, of course, is that both Jack and Wade are in circumstances in which they could bring the economic crisis to an end with very little effort on their part. Wade just needs to get that study written up on the front page of the New York Times and Jack just needs to address the Lindauer matter so that the hundreds of posters who have expressed a desire that honest posting be permitted at the Bogleheads Forum can see that desire given recognition in the real world.
I believe that whether Wade and Jack go to prison or not will likely depend on the answers they give to questions put to them under oath. People are going to want to know how deep their fears were. Were family members threatened? How did they rationalize their behavior to themselves? How deep was their cognitive dissonance? All this kind of thing.
As for the $500 million, that’s just a number that I put forward as part of an effort to provide an incentive for the Wall Street Con Men to seek a settlement prior to the next crash. Any person who has participated in the cover-up is liable to me for the financial damages I have suffered as a result of the damage done to my business. The amount of the damages is obviously a number far bigger than the number I put forward as a possible settlement amount. I did that because I don’t want us to go into the Second Great Depression. I am happy to settle for $500 million if it brings the economic crisis to an end and helps us on our way to the greatest period of economic growth in our history. I am far better off getting $500 million to spend in a thriving economy than I would be to receive a far larger amount in a society that is in a state of collapse. No one wins if we fail to bring this matter to a successful conclusion prior to the next price crash, in my assessment.