Vanguard's Bogle: The capitalists failed us
Video: The Vanguard founder and former chairman says a bandwagon mentality drove bankers to make decisions they presumably should have known better than to make
You can read the full transcript below.
Don Phillips: As a card-carrying capitalist, how do you feel about--or what lessons are there about capitalism from what's happened here, and how do you feel about the increased and expanded role of government?
John Bogle: Well, business brought it on themselves. This is certainly a crisis in capitalism. Judge Posner blames it all on the capitalistic system. He's the great Chicago School man everybody knows. University of Chicago Law School, Chicago Business School all teach us this.
The markets have to clear. They will produce great gains for us. Competition, free markets unimpeded.
So capitalism has basically failed us, and I think even worse--although Judge Posner does not agree with this--I think capitalists have failed us as well as capitalism.
I blame the capitalists actually more than capitalism, which gets to, Don, the endemic part of the system, which means that the idea that capitalism brought this crisis upon itself is even more acceptable, more understandable, in the whole scheme of things.
That is, these businessmen--take the bankers. All the other banks are doing these low loans, so their earnings are growing faster than ours are. So our directors and the analysts on Wall Street say, boy, you better get on the bandwagon and follow.
I've written on this in a number of different contexts, but it's a little bit like the old ethical standard. Think about this, all of you, if you would. There are some things that one just didn't do. That's the way I was brought up. It's not gray; it was black and white.
Now the ethical standard seems to be if everybody else is doing it, I can do it too. Carry that over into the banking. Everybody else is doing these funny loans and having earnings grow faster, building up their margins, leveraging those margins.
The more leverage A gets, the more leverage B feels inclined to get. So the system fed on itself and drove bankers to making decisions that they, presumably, should have known better than to make.
I don't--like Judge Posner does, however--I don't blame government for this. I was at a meeting of CEOs, even though I haven't been to one for quite a while, and someone asked me to sum up the morning. This was a bunch of bankers and other CEOs. They said, what do you think about all this?
I said, you know, what I'm hearing here is you're blaming the government for allowing you to do what you should have had enough brains not to do in the first place. I think there's a lot to that. So it's endemic to the system, and we have to learn to have a better capitalistic system.
I don't call it nationalism. Call it what you will, Don. If the government owns 35% of the bank, it's not their fault they own 35% of it. They had to bail the bank out. Frankly, other than the fiscal issues, I don't see any difference in having Washington, D.C., own 35 percent of Citibank than having Dubai own it except Dubai would drive a much harder bargain.
Phillips: [laughs] Well, it seems at the end of the day, character still counts.
Bogle: Yes, character still counts, and we have lost a lot of that.
