Set forth below is the text of a comment that I recently posted to another blog entry at this site:
Rob, this prison sentence talk is just smelly garbage.
I don’t agree with you, Sensible.
The laws against financial fraud are part of our political system. Prison sentences are part of our political system. When I say that I love my country, I am saying that I think that our system is a good one. There is a reason why we have laws against financial fraud and there is a reason why we have prison sentences. It is to protect us from situations like this.
We should be enforcing our laws and putting people who violate them in prison. We should have started doing that a long time ago. Had we done that, we all would be in a much better place today.
Everything changed in 1981. If men were angels, Bogle would have given his “I Was Wrong” speech within a few weeks of when Shiller published his revolutionary research showing that valuations affect long-term returns. Bogle was working in this field. It’s hard to imagine that he didn’t hear something about this amazing research. He’s a very smart guy. So it is hard to imagine that it didn’t strike him that Shiller’s findings constituted a major challenge to the model for understanding how stock investing works that he had been promoting.
So he should have gotten up on a stage and said “I Was Wrong” or “Perhaps I Was Wrong’ or “It’s Beginning to Look As If I May Have Been Wrong About Some Things” or at least “I Don’t Really Think I Was Wrong But You Certainly Need to Know About This Research That Points in That Direction and We All Need to Be Exploring the Implications of This in Coming Days.”
He certainly should have said SOMETHING along those lines. Had he done so, lots of smart people would have gone to work and explored the question. Maybe the questions would have been resolved quickly, maybe not. We certainly would not have found ourselves in a situation where some guy whose only expertise in the field is that he figured out how to post stuff to the internet would on the morning of May 13, 2002, put a post to the Motley Fool site noting that John Greaney’s retirement study did not contain an adjustment for the valuation level that applied on the day the retirement began and we would have seen a nuclear explosion of abusive posts in response that would continue for 12 years to come.
So Bogle messed up. Big time.
Fine. But it wasn’t just Bogle who messed up.
Why didn’t journalists DEMAND that Bogle make some sort of speech?
Why didn’t economists put forward their own takes?
Why didn’t thousands of investment advisors integrate Shiller’s findings into their recommendations and write articles explaining why the new research changed our assessment of every strategic issue?
Why didn’t people develop new calculators?
Why didn’t the authors of the Trinity study include a warning in their retirement study that their calculations were all based on the pre-1981 research and that calculations done on the post-1981 research would yield very, very different numbers?
That’s the issue here. It wasn’t one guy who messed up. It was an entire society. Bogle messed up and most of us went along for the ride. Why?
Because there was so much freakin’ money to be made by doing so.
The Buy-and-Hold Lies generated $12 trillion in Pretend Money. That provides for a whole big bunch of marketing efforts. Every time another dollar of Pretend Money was created, someone was there to claim “credit” for it. “Hey, you have that dollar in your account because you believed the Lies that I told you! Stick with me, I’ll tell you even more Lies as time goes on and you can enjoy even bigger Get Rich Quick fantasies!” Those were the unspoken words spoken to millions of middle-class investors over and over again by the hustlers who continued to advocate Buy-and-Hold strategies for years and even decades after the peer-reviewed research showed that there is precisely zero chance that a pure Get Rich Quick approach could ever work for even a single long-term investor.
Humans are weak. Dangle $12 trillion in free marketing before their eyes and there is a good chance that they will do the wrong thing and rationalize away their ethical concerns. How does a society protect itself against something like that?
We protect ourselves with laws against financial fraud, Sensible. We protect ourselves with prison sentences.
That’s the wonderful role they play in our system. When we send people off to prison for massive acts of financial fraud, we help lots of people. We obviously help the millions of middle-class investors who need access to honest and accurate reports as to what the peer-reviewed research says. But those are not the only people we help. We help all the economists because we make it possible for them to do honest work. We help all the journalists because we make it possible for them to do honest work. We help all the investment advisors because we make it possible for them to do honest work. We help all the web site owners and bloggers and policymakers because we make it possible for them to do honest work.
We even help the freakin’ Goons! You Goons don’t want to go to prison. Had Motley Fool kicked John Greaney out on his rear end when he advanced his first death threat, John would not be on his way to a long stay in a prison cell today. He would have been banned from our community for six months. At that time, I would have put forward a post suggesting that we give him another chance to play nice and everyone would have agreed and that would have been that. Instead, he is in this horrible place today where he is going to prison himself and where a lot of his friends are going to prison with him. Huh? That’s a good development how?
That’s the magic of prison sentences announced at the proper time, Sensible. Prison sentences are our friends. They are an important part of our system. Prison sentences protect us from our darker, more goony selves. Prison sentences are like “You’re out!” calls in baseball. They send a signal that you are doing something wrong and that you had better change the way you play the game if you want to win the World Series. Take “You’re out!” calls out of baseball and you ruin the game.
Take prison sentences out of the investing advice game and you find yourself flooded with investing advice that constitutes financial fraud and an economic crisis that darkens life for millions.
Thousands of our fellow community members have expressed a desire that honest posting on the last 33 years of peer-reviewed research be permitted at every discussion board and blog on the internet. Their voices are going to be heard. They are going to get what they want. I am going to see to it.
They are going to get what they want through the magical power of prison sentences. Prison sentences are wonderful stuff in the right circumstances. The announcement of your prison sentence will permit millions of good people to learn what they need to learn to enjoy far higher returns than they ever imagined possible while taking on far less risk than they ever imagined possible. That’s amazing, life-affirming stuff. We couldn’t do it without our laws against financial fraud and without our willingness as a society to send you and your Goon pals off to prison for a long, long time.
That’s the system that I love. That’s the country that I love.
Prison sentences for Goons smell very, very, very sweet.
It is goonishness and Buy-and-Hold strategies that are the foul smelly stuff causing so much human suffering. Yucko!
We’re on the one-yard line. Perhaps another year. Perhaps two.
Patience, Grasshopper! We’re all going to be famous! It’s all going to turn out for the best, just as John Walter Russell predicted many years ago! With every day that passes we inch a bit closer to that final wonderful paragraph of the story at which I peeked before working up the courage to advance that famous post of the morning of May 13, 2002.
Three Cheers for Prison Sentences! Three Cheers for Putting You Goons Away for a Long, Long Time!
Hang in there, man. It gets better. A LOT better. Yes, even serving your time in prison is better than living out the rest of your days with the prospect of a future prison sentence handing over your head.