In Defense of Wall Street
Jack Bogle, the Vanguard founder, has it wrong: The financial-services industry does add value to the economy.
Bloomberg, November 13, 2018
— Robin Powell (@RobinJPowell) July 14, 2018
As a vocal critic of the financial service industry’s excesses, I sometimes am surprised to find myself arguing on the industry’s behalf. I have railed against excessive fees, the manipulation of investor emotions, the pursuit of alpha at the expense of beta, the failure to place clients’ interests above their own via a fiduciary rule. I even wrote a book detailing the evils of privatized profits and socialized losses.
So it is with some amusement that I find myself defending Wall Street from some critiques. The most recent version was via Jack Bogle’s statement that the “financial system subtracts value.” That was a line from the Vanguard founder’s 2010 book, Enough: True Measures of Money, Business, and Life.[i] But a lot has happened in the ensuing years, sufficient for us to revisit this statement – and find it wanting.
Usually, I am sympatico with Bogle’s philosophy. Sure, we can find little things to disagree about, like investing overseas and the value of ETFs. But his claim that on balance the system subtracts value is one of those things where he and I disagree. When a vocal critic (like myself) defends the subject of their criticism, can be an exercise fraught with danger. Let’s see if I can escape from today’s task unscathed.