The Blog: On the Vanguard of the financial meltdown
By Dave
October 9th, 2008 | Leave a comment
Vanguard Group Inc. founder and former CEO John Bogle is coming out with a book in November, written long before the current financial doomsday erupted, that warned about the dangers of overleveraged banking and the obscene (his words) compensation awarded to CEOs of failed — failed! — companies.
His book, Enough: True Measures of Money, Business and Life, harshly (and rightly) criticizes the rampant greed that has triggered the global market chaos, which began more than a year ago as the subprime mortgage nightmare-in-the-making came home to roost. As banks began writing down their losses, the derivatives (here’s where it gets fuzzy) that were supposed to back or be backed by mortgages (did I mention fuzzy?) and the insurers and bankers that were supposed to vouch for one another suddenly found themselves in deep doo-doo.
Suddenly governments are bailing out the banks that were supposed to be invulnerable and the world’s largest insurers of insurers of banks of insurers of banks of governments. Or something like that. Seven hundred billion dollars here, $700 billion there, and pretty soon you’re talking real money.
And suddenly, Iceland is bankrupt!
Bogle laments the greedy profit motive that has no anchorage in value. Bogle should know value. One of Vanguard’s most successful funds, the Windsor Fund, is known as a “value” fund (disclosure: I have a fair sum invested in Windsor). A simple summary: Value fund managers seek companies that they believe are undervalued on the market and expect to rise in value over time. It might be an unglamorous company in an out-of-fashion sector (one thing I know: Investors are not rational) that is otherwise a solid company.
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Our Daily Red is written by Delmio Editorial Director Dave Wilson, who is not looking forward to his next 401(k) statement.
