Being David Brooks III

Conservative columnist, David Brooks, whom I have followed for years and whose columns I often appreciate, wrote a thoughtful piece on Bernanke and the Fed that is worth considering, "Wise Muddling Through." I have written of Brooks here before.

Brooks writes:

Their decision not to bail out Lehman Brothers was based on a complete misreading of the economic psychology. Paulson was sick of doing bailouts. He seems to have had some sort of intuitive moral sense that it was time for some bank to pay for its mistakes. Bernanke and Geithner went along, and none of them anticipated the meltdown that followed.

But this is not a story of failure. It’s a story of effective muddling through. Bernanke & Co. never really got control of events. But they did avert disaster and committed only a few big blunders. In the real world, that counts as a job well done.

As I see it, there are two things wrong here:

First, it is very difficult to speak about another's moral intuition, especially when that one was over Goldman Sachs and when he and Geithner, who was over the NY Fed, have such cozy relationships with Wall Street bank executives.

Morality is shown by consistent actions and decisions. Paulson insisted that Merrill Lynch and Bank of America merge, giving the latter a pretty hefty bailout. BofA would probably be insolvent without it, as well as Goldman Sachs.

Second, it was their lack of complete oversight of these banks over many years that led to the crisis, not just merely allowing Lehman to fail, but allowing AIG to essentially become a Hedge Fund that insured Goldman Sachs, becoming too big too fail.

While Brooks is appreciated, I am with Jack Bogle, Nassim Nicholas Taleb, Arianna Huffington and Eliot Spitzer. Their words and actions have mattered most in this economic crisis.

Being John Bogle VII

"The stock market is a giant distraction to owning business."

--John Bogle

You gotta love Jack (Bogle)! Thank you, honored sir. If you haven't read his book, Enough: True Measures of Money, Business and Life, you must!

Now, if we can only get those CNBC commentators to read it and learn. They appear as featherweights in comparison, yet they are so vocal.

Being a Speculator

There is a difference between speculating and investing. In his book, Enough. True Measures of Money, Business, and Life, John Bogle, the legendary founder of The Vanguard Group, writes that business over the last 75 years has focused "on the gradual accumulation of intrinsic value, derived from the ability of our public owned corporations to produce the goods and services." This he called investing.

We have been speculating, the opposite of investing, more lately. Bogle defines speculating as "short-term trading, not long-term holding of financial instruments-pieces of paper, not businesses-largely focused on the belief that their prices as distinct from their intrinsic valued, will rise." Shorting, betting that the market will go down, is largely what speculators do.

Often times we hear sayings such as "cash is king." When I hear this saying I often wonder which mindset does such a statement derive, from that of a speculator or an investor. While cash may be king it should be about how that cash is gotten to the detriment of what and whom. Speculating often includes shorting the market in the best that stocks will fall. Often times such is the precipitous for their decline.

While short selling is legal, it seems like it also shorts away the actual lives, savings, and retirements of average Americans while they give banks billions in bailouts that speculators short while living large and our beloved country and its average people suffer. People, this is not love of country! It's love of money, power (financial kings in their unwholly kingdoms) and the pure game! The whole thing seems like a big racket!!!

I've been reading the likes of Jesse Livermore and Nicholas Darvas, big time opponents of shorting stocks, for some time now and following the markets closely. Back then there were less players. Now, there are way too many! Bogle is right about the necessity of ethics in these matters and the necessity of investing and not merely speculating! We have had way too much of the latter lately!

Being John Bogle VI

Among the top stories for today on CNNMoney.com is an interview with the legendary founder of The Vanguard Mutual Fund Group, John Bogle. He answers questions regarding the Obama Administration and Tresaury Secretary Geithner's much undeserved "maligned" speech yesterday, exposing the game aspect of the market. Mr. Bogle brings much needed clarity to the financial crisis. His years of living have indeed taught him great wisdom. His is the voice we need to hear more of in this crisis.

Being John Bogle V

In a review just posted this evening on the Huffington Post, I wrote on John Bogle's latest book, Enough! True Measures of Money, Business, and Life. I have written here of this wonderful little power-packed book more than once and wanted to share it with a larger audience. The HuffPost gets 20 million hits a month. I hope you will be one of these.

Being the Singular Eye (I)

Thinking of Bernard Madoff sickens me. Considering him, I thought of the scripture found in the Old Testament in Ecclesiastes 1:8: "The eye is never satisfied." The likes of Mr. Madoff have no other members except for the eye. I want more and more.

"Enough!" (John Bogle's Enough. True Measure of Money, Business and Life is a must read for everyone. It is simply beautiful and so very relevant for our time.)

Did Mr. Madoff not attend Hebrew School? Many people should be imprisoned, including those who turned him in. Others who should have been regulating such firms to avoid such a $50 billon dollar Ponzi scheme that can harm the public, including charities and universities, should be fired immediately.

There are many eyes (I's) involved here.

Being a Capitalist or Socialist

There has been much talk of late with the many bailouts if we are becoming a socialist country. Some wonder if capitalism has ended. In pondering the reason we have arrived at this very discussion I wondered if it is not a question of capitalism vs. socialism but how the market is "played."

In his latest book, Enough. True Measures of Money, Business, and Life, John Bogle writes that business over the last 75 years has focused "on the gradual accumulation of intrinsic value, derived from the ability of our public owned corporations to produce the goods and services." This he called investing.

Speculating, as defined by Bogle, is the opposite of investing. He defines it as "short-term trading, not long-term holding of financial instruments-pieces of paper, not businesses-largely focused on the belief that their prices as distinct from their intrinsic valued, will rise."

Bogle points out that John Maynard Keynes thought of investment as an "enterprise," as forecasting the prospective yield of an asset over its entire life." He defined speculation as "the activity of forecasting the market."

Here is Keynes' warning on speculating:

"When enterprise becomes a mere bubble on a whirlpool of speculation (and) the capital development of a country becomes a by-product of the activities of a casino, the job of capitalism is likely to be ill-don."

It looks like we have been speculating about business and not investing in business and there are more people besides money managers engaged in this activity, albeit legal. There is no intrinsic value in shuffling paper for the whole and there is no long-term sustainability either.

Perhaps capitalism in itself is not the culprit but how the overall system was changed from investing to mere speculating by a larger number of people. This reminds me of a book I read about seven years ago, Reminiscences of a Stock Operator, about the life of "The Boy Plunger," Jesse Livermore (1877-1940).

The book was given to me by a very successful friend who calls himself a "stock operator." He sees himself as such since he has created all of his own stock charts over the past 25 years and does not consider himself a mere trader or speculator. He is a stock operator. I have always failed to see the difference when the activity remains the same and produces the same results. A name by any other name is still a name.

While I thought the Livermore story was very interesting, I also wondered of the intrinsic societal value of such shorting. And to be quite honest I was also pretty grossed out by the name given Mr. Livermore. It had an incredible ruthless ring, as did many of his activities on the market appeared. There was an unsettling nature to his successes. His bankruptcies and eventual suicide were disturbing as well.

Perhaps speculation of this kind is a game that is too risky for the whole of society, for it takes the will out of companies that are regrouping or struggling to stay afloat. Its ultimate effect is the loss of jobs. Maybe shorting worked for years when the the system was not duly challenged. But when there are a great number of people now betting on the failure of companies by selling short, maybe this can be quite detrimental to business and society.

Being Dispensed Words of Wisdom

In this recent six-minute NPR interview John Bogle dispenses invaluable words of wisdom on investing and life. It's relevant, precise, honest and needed.

Being John Bogle

This afternoon I received in my inbox a "Message from Jack Bogle," founder and former CEO of The Vanguard Group. Yes, I admit that I am a Boglehead and being such I have received this message. It included a chapter from his newest book, Enough. True Measures of Money, Business, and Life. In the introduction, Mr. Bogle tells a powerful story:

At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch - 22 over its whole history. Heller responds, "Yes, but I have something he will never have... enough."

Enough. I was stunned by the simple eloquence of that word — stunned for two reasons: first, because I have been given so much in my own life and, second, because Joseph Heller couldn't’t have been more accurate. For a critical element of our society, including many of the wealthiest and most powerful among us, there seems to be no limit today on what enough entails.

This story reminded me of a meeting with an incredibly wealthy associate who I have known for many years. Enough is never enough for him and sometimes he shows an incredibly insensitive ruthless self-centered side that is baffling. This bright complicated intelligent man can be just as kind. I suppose we are all complicated beings. But how we view money can say a lot about who we are at the center of being With this friend, money means more to him than just about anything. Sometimes it seems as if money has imprisoned him.

When enough is never enough this is what scripture calls the "love of money" that is the "root of all evil." Greed and loveless actions is the result. It is not that money is bad, needless to say, nor is it what money can do that solely corrupts. (Many very wealthy people use money for great good. Whether through business or charity; this is truly admirable.) But it is the love of money that causes great problems, for it excludes all possibilities of goodness, save that which increases itself.

This associate tells me repeatedly that it's not about money or power; it's about the game. But without the pursuit of increasing money achieved in part by a single-mindedness and carelessness of others, there would be no game. Not being able to say enough also reminds me of another scripture; "the eye is not satisfied."

For his brilliance, hard work, ethics and thoughtfulness, Mr. Bogle is one who I greatly admire. Are we developing leaders like this anymore? From the inferences in the introduction of his newest book, it took a village to instill such principles. Can we return to this sense of collective responsibility that breeds individual accountability?

Being John Bogle II

A few days ago I commented on a post, Leadership Farming, written by John O'Leary on Tom Peter's blog about financial engineering as opposed to engineering products. As I am not a financial expert, I simply wrote about what appeared to me. So, this afternoon it was good to read that my hunch was not too far off, as the financial veteran of 57 years, Jack Bogle, writes about financial engineering in his newest book, Enough. True Measures of Money, Business, and Life that bore relevance to my thoughts. He writes:

In my speech at Georgetown, I noted that during 2006 the financial sector alone accounted for $ 215 billion of the $ 711 billion in earnings of the 500 companies that make up the S & P 500 Stock Index — 30 percent of the total (and perhaps 35 percent, or more, if we included the earnings of the financial affiliates of large industrial companies, such as General Electric). The domination of financial companies in our economy and our stock market has been extraordinary. The earnings of these financial firms alone totaled more than the earnings of our highly profitable table energy and technology companies combined , and about three times the earnings both of our booming health care sector and of our giant industrial firms.

By the time 2007 had ended, the financial sector earnings had plummeted by almost half, to $ 123 billion for the year. Not only had fi financial sector earnings shrunk from 30 percent to 17 percent of the $ 600 billion earnings total of the S & P 500 companies; the sector also accounted for fully 90 percent of the S & P 500 decline in earnings for the year. The carnage has continued during 2008. Call it poetic justice.

But is it? The clients of the banking firms have lost hundreds of billions of dollars in the risky debt obligations that the banks created, and layoffs of employees are rife — more than 200,000 financial sector workers have already lost their jobs — yet most investment banking executives continue to be paid at astonishingly high levels.

We have moved to a world where far too many of us seemingly no longer make anything; we're merely trading pieces of paper, swapping stocks and bonds back and forth with one another, and paying our financial croupiers a veritable fortune. In the process, we have inevitably added even more costs by creating ever more complex financial derivatives in which huge and unfathomable risks have been built into the financial system.

The discussion at tompeters.com was on leaders and protegees. Here is what I wrote:

There is no doubt, keeping with the fruit analogy, that the apple doesn't fall too far from the tree. Also, in the same vein, the fruit of love, which is the basis of leadership, is collective. Love is the best gathering force that initiates and implements projects, bringing together important elements such as respect, creativity, openness, passion, rigor, ambition, and thoughtfulness. Where love is lacking there is a lot to be desired. Have you worked on a project where nobody cared? Where ambition was the only driving force? Where apathy was so deep that it's difficult to go into the office?

The leader sets the tone and guides the group. While this is happening, it may appear that all is well and the direction is copasetic; the numbers may even prove so at the moment. But some years later some have argued that if you look at that leader's company and those of his proteges, there is, in fact, much to be desired. In such a case, has the leader not developed his proteges well and promoted unsustainable models over the long haul? Or, is it a matter of the necessity of change? (Disclaimer: What's to come is NOT an indictment of any one man nor of any one company. I am not adept to speak in depth about these things. These are just thoughts from a point of leadership and succession.)

Consider GE, for example. Some point to financial engineering as a big culprit in its steady stock decline over the years as well as the companies of those that have taken on this model. This model appears to have reduced products and expanded paper. Many leaders came out of the mode of Mr. Welsh and have themselves come to lead major companies. Leaders were "popping up like shoots around" him, pointing to the fact that he had "likely done something right." We are sure he did and we have enjoyed reading his books and have learned from them as well. Many thanks!

But why the steady stock decline of these companies over the years? Perhaps as leaders we give what we can give at any particular time. Perhaps what's also important is to be forever open and honest about where we are and quick to change directions once we see things clearer. For this, Paulson can be appreciated. He came out yesterday and said we have made changes to the financial rescue package because "the facts changed and the situation worsened." We can't throw money at bad paper whose worth can’t even be determined. Many have always thought that thought this was ill-conceived. Perhaps this was a bit of election fever to propose such a thing from the start. As Paulson sees it, credit has improved but other industries have worsened.

But what happens when we do not see that our processes or when our plans are ill-conceived and we continue to develop and promote them? Could it be the toppling or the threat thereof of the leaders' companies and the proteges' companies too? Can the blame be laid at the feet of the leader? Some have remarked that Mr. Welsh's GE and the companies of all his proteges are now in trouble because of a bad business model. Personally, I don’t know. These are just thoughts.

As I read Mr. Bogle's first chapter, "Too Much Cost, Not Enough Value" in a section entitled, "Money," I am reminded that sometimes hunches can be spot on.

Being John Bogle III

Here is Mr. Bogle on hedge fund managers, namely Henry Paulson, in chapter one of Enough. True Measures of Money, Business, and Life.

According to the New York Times, the highest - paid hedge fund manager for 2007 was John Paulson, who took down a cool $ 3.7 billion. It is said that his firm, Paulson & Company, made more than $ 20 billion for his clients by betting against certain mortgage - backed securities (more fully described later). Who's to begrudge Mr. Paulson a large share of the rewards that his firm earned for its clients by such a remarkably successful speculation?*

Not I! My problem with the incredible compensation earned by hedge fund managers is its asymmetry — its lack of fundamental equity. Managers on the winning side of speculation win big; but the losers don't lose big. For example, if the Paulson firm indeed won its gamble by betting that mortgage - backed securities or collateralized debt obligations would tumble (or being on the right side of the rank speculations known as credit default swaps), some other firm lost its gamble, betting that those debt obligations (or those swaps) would rise. The other side, it follows, would have lost $20 billion. But those managers, as far as anyone knows, didn't give $ 20 billion back to their clients. So the huge cost of our financial system rose, benefiting insiders even as their clients were impoverished (relatively speaking).

∗ I do begrudge hedge fund managers the maximum 15 percent tax rate that the federal government applies to so - called carried interest, an obfuscatory phrase referring to the share of profits paid to hedge fund managers. Such a low rate is an insult to those hardworking citizens whose far smaller earned incomes are often subject to standard federal tax rates that are twice as high or more. I also understand that clever tax planning enables this income to be deferred, free of any taxes and earning a return until drawn down later. Unsurprisingly, attempts at tax reform by Congress have been overwhelmed by the well - funded lobbyists hired by hedge fund managers.

Is having Mr. Paulson over the $750 billion dollar bailout like having the fox in the hen house?

Another question, who has benefitted most over these past years, the hedge fund managers or the middle class?

Mr. Buffett's fair statment that his secretary should not be paying more taxes than him is very relevant here.

We can't continue like this. What should be done?

Being John Bogle IV

Here is Mr. Bogle again in chapter one of, Enough. True Measures of Money, Business, and Life:

Over the past two centuries, our nation has moved from being an agricultural economy, to a manufacturing economy, to a service economy, and now to a predominantly financial economy. But our financial economy, by definition, deducts from the value created by our productive businesses. Think about it: While the owners of business enjoy the dividend yields and earnings growth that our capitalistic system creates, those who play in the financial markets capture those investment gains only after the costs of financial intermediation are deducted. Thus, while investing in American business is a winner's game, beating the stock market before those costs is a zero - sum game. But after intermediation costs are deducted, beating the market — for all of us as a group — becomes a loser's game.

Can a nation the size of America sustain itself without production?