BOOKS: by Peter WestmoreNews Weekly
ENOUGH: True Measures of Money, Business, and Life, by John C. Bogle
, February 7, 2009
A plea for ethics in business lifeENOUGH: True Measures of Money, Business, and Life
by John C. Bogle
(New Jersey: John Wiley & Sons)
Hardback: 276 pages
Rec. price: AUD$49.90Although not well known in Australia, John Bogle is one of America's most respected business leaders. The founder of the Vanguard Mutual Fund Group in 1974, Mr Bogle served as its CEO until 1996 and senior chairman until 2000.
At the time he stood down, Vanguard had $550 billion in investments.
Mutual funds are, essentially, professionally managed investment companies which collect money from many investors, who each have shares in the fund, and puts it into stocks, bonds, short-term money market instruments and/or other securities.
Mr Bogle has authored a number of books, including The Little Book of Common Sense Investing
, The Battle for the Soul of Capitalism
, Bogle on Mutual Funds
, and Common Sense on Mutual Funds
is written directly as a response to the present financial crisis. It analyses the present crisis not in terms of economic principles such as assets and liabilities, or returns on investment, but on the moral principles which have come to dominate the financial markets.
This is a surprising book. Its style is personal and anecdotal. Mr Bogle tells us a lot about himself, the family he grew up in, his education, and how he came to work in a small mutual fund after graduating from Princeton in the early 1950s.
He recounts how he became general manager of the Wellington Fund at the age of 35, and was sacked during the economic downturn of the early 1970s. He then set up the Vanguard Fund, which over the next 25 years he built into one of the giants of the American financial system.
His wealth of experience provides the backdrop for this book.
John Bogle's view is that Wall Street's failure, which triggered the collapse of the global economy in 2008, is due less to mistaken financial theory than to human failure: to the ethos proclaimed by Gordon Gecko in Wall Street
, "Greed is Good!", to the belief that the finance industry is both fantastically profitable and productive, and that the sole measure of success is wealth, fame and power.
He argues convincingly that the financial system has been characterised by a loss of values: of corporate executives who have enriched themselves at the expense of stockholders; of a refusal to consider the cost of financial services, and delivery of too little value.
He highlights the way in which the financial markets and investment houses rewarded speculation at the expense of long-term investment, quoting the memoirs of Henry Kaufman, On Money and Markets
, written in 2001.
Kaufman wrote prophetically, "Trust is the cornerstone of most relationships in life. Financial institutions and markets must rest on a foundation of trust as well ....
"Unfettered financial entrepreneurship can become excessive and damaging as well — leading to serious abuses and the trampling of the basic laws and morals of the financial system."
Kaufman continued, "Such abuses weaken a nation's financial structure and undermine public confidence in the financial community.... Only by improving the balance between entrepreneurial innovation and more traditional values can we improve the ratio of benefits to costs in our financial system....
"Regulators and leaders of financial institutions must be the most diligent of all," he concluded.
Mr Bogle points to a failure of trust, of widespread unprofessional conduct, of the loss of a sense of stewardship among investment professionals who were custodians of other people's money, and regulators who permitted those excesses.
He calls for a return to the values which made America great: of personal responsibility, of being content with what one has, of trust in and respect for others, of prudence in financial matters.
"The question, in short, is not whether the United States has enough — enough productive wealth — to maintain and enhance its global presence and power, but whether it has enough character, values and virtue to do so."
Time alone will answer this question.