Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
“The amnesty will let a lot of people off the criminal hook while containing funding to aid the transition to Valuation-Informed Indexing.”
So, you believe there will be Federal money spent to promote VII?
The economic crisis that was caused by the promotion of Buy-and-Hold “strategies” is the #1 public policy issue of our time. It is scaring millions of people that their economic circumstances are getting worse and worse at a time when they should be getting better and better. Our economic system is working. It is producing huge advances in productivity. But the money is not finding its way into the pockets of the millions of hard-working middle-class people who produced it. It is all being funneled through the miracle of Buy-and-Hold into the pockets of a small number of Wall Street Con Men. And we are seeing political frictions on both the left and the right as a result. These frictions will worsen with another huge price crash.
We are going to have to do everything we can as a society to open up some space for accurate and honest presentations of what the last 36 years of peer-reviewed research tells us about how stock investing works. There was a time when we did not spend Federal money on environmentalism. We do today. There was a time when we did not spend Federal money on education. We do today.. There was a time when we did not spend Federal money on anti-discrimination efforts. We do today. So, yes, I think it is entirely possible that we will elect as a society to spend Federal money to assure that nothing like this current bull market (and the massive act of financial fraud that keeps it going) ever happens again. I could see that happening.
I am someone who believes that Federal programs that are well-intentioned can get out of hand because, once they are put in place, they are not monitored carefully and there is a gradual drifting away from the original purpose. So, personally, I would prefer seeing this done though the private sector. There are huge amounts of money to be made giving accurate and honest and research-based investing advice. Once we begin enforcing the laws against financial fraud, everybody in this field is going to be presenting himself as a Valuation-Informed Indexer and the word re what works will spread quickly. We have seen on the various boards that the hunger for honest investing advice is HUGE. So we can easily get the job done without the adoption of any Federal programs.
However, the full reality is that Shiller’s research shows that how people go about investing in stocks is a public policy question. The stock market is where most of us put our life savings. It matters what happens to our life savings. We all have a Get Rich Quick urge within us. So we are always as humans inclined to fall for Get Rich Quick strategies. Once those strategies become popular, they are VERY hard to defeat. Get Rich Quick strategies provide HUGE short-term payoffs. And so bull markets always get out of control. Once a bull market gets out of control, it becomes impossible for the “experts” who promoted them to acknowledge their errors, even in the face of mountains of peer-reviewed research revealing them, because they have caused so much human misery at that point that they just cannot bear to own up (even in their own minds!) to what they have done. So this is a serious business.
I don’t personally think that we need a Federal program. I think this can be done through educational efforts, which can be done through the private sector. I personally think that is the way to go. But I also think that it makes sense to adopt some sort of amnesty. Lots of people are potentially on the hook both criminally and civilly who really just got caught up in something a lot bigger than them. Wade Pfau obviously had every intention of using his talents to help people. He 100 percent wanted to do honest work. The evidence re that point is simply overwhelming. So I believe that he should be left off the hook for things he did because he was worried that he would not be able to feed his children if he continued to do honest work in the face of the threats delivered to him by the Bogle Goon squads. There are thousands of Wade Pfau’s out there. An amnesty is appropriate.
But how do you sell the amnesty? Wade’s story evokes sympathy. To someone who has not lost most of his life savings as a result of Wade’s criminal actions. Someone who has lost most of his life’s savings as a result of Wade’s criminal actions is going to have a hard time going along with an amnesty. Millions of people are going to be very, very, very angry following the next price crash, and understandably so. We are going to need to do something to address that anger. Adopting a Federal program that insures that nothing like this can ever, ever, ever happen again might be the way to go.
It might be that we provide an agency where people can go to obtain educational materials when they hear some investing “expert” pushing some strategy that sounds plausible on the surface but that causes warning bells to go off suggesting that the story doesn’t quite add up. That’s how I felt about Buy-and-Hold in the days before Greaney’s first death threats, when it became clear to me that the entire thing was a huge con. I would have liked to have been able to call a number and have someone point me to materials showing that the idea that there is some mystical, magical research somewhere showing that the claim that there is no need to practice long-term timing (price discipline) when buying stocks is a lie. It was Wade Pfau who told me that when we were doing research together. It would have been a lot easier just to be able to call a Federal agency and have someone not getting rich pushing the purest Get Rich Quick garbage ever concocted by the human mind tell me the straight story.
My personal vote would be not to have Federal money spent cleaning up this mess. But I can easily see it happening. And it could be that I am wrong in my inclinations. A lot of people didn’t think Social Security was a good idea. My inclinations would probably have been to oppose Social Security. I have come to believe that it was a good idea. I am beginning to feel that way about Obamacare. I certainly did not support it when it was being considered. But I think it would be fair to say that efforts to repeal it have not played out well. Perhaps we need some kind of Federal program ensuring that everyone has access to basic health care. Perhaps some of us get stuck in old ways of thinking and become too reactionary in our thinking. Perhaps I am just letting the liberal side of me come out and play a little bit today.
I am not able to give you a definitive answer to your question, Anonymous. How we proceed is something that we are going to decide as a society. Each and every one of us is affected by this massive act of financial fraud. We are all going to get to have a say on how to turn things around. We have a great economic system. But I think that it would be fair to say that capitalism runs on the pursuit of self-interest; that is the driver of our system. In most areas, that works okay. But in the investing realm, there is a huge payoff for telling horrible lies to people about what the last 36 years of peer-reviewed research show us about how stock investing works in the real world. That needs to change. Of that I am 100 percent certain. There are lots of good people trying to do good work in this field. But they hold back from doing that work in an effective manner because they live in fear of what the Wall Street Con Men will do to them if they put forward a fully honest statement or two. That simply must stop.
Our system is based on incentives. The incentives get too out of whack in the investing realm because Buy-and-Hold can be such an amazing winner in the short term and such a horrible loser in the long run. I still believe that we can address the problem in the private sector. But I certainly don’t object to turning to the government sector for help if that is what is needed. I want to see my Wall Street Con Men friends doing the sort of work they intended to do when they first entered this field, in the days when Buy-and-Hold was just a gleam in Jack Bogle’s eye.
The bottom line is that we will do what we need to do to open up access to honest discussion of safe withdrawal rates and scores of other critically important investment-related topics to every investor on the planet. We must do that and so we will do that. If we can do it without adoption of Federal programs, I would vote for doing it without the adoption of Federaal programs. If it takes Federal programs to keep in check the greed of the Wall Street Con Men, then so bet it, you know? My priority is the preservation of our economic system and of our political system. I have a funny feeling that, deep down in his heart of hearts somewhere, that is my good friend Jack Bogle’s priority too.
We will see how it all plays out in days to come.