If only this guy would read Marx. No wait, that would just make him
another HCKL or something similar to that.

BTW, I noticed one of the more famous private equity groups, Carlyle
Group, is trying to put  together big deals in overseas universities.
I guess they think 'American-quality' higher education is the next big
 wave. And Laureate is the model.


BILL MOYERS: This story in THE NEW YORK TIMES this week. What do you
think when you read a story like that?

JOHN BOGLE: Well, first, it's a national disgrace. Simply put. And
there are some things that must be entrusted to government and some
things that must be entrusted to private enterprise. And what we see
there, at least in my judgment, is that we've taken medical care,
healthcare and going from making it a profession in which the patient
is the object of the game — preserving the patient "first do no harm"
as Hippocrates would say or would have said and turn that into a
business. And so, it's a bottom line. I've often said we're in a
bottom line society. We're measuring the wrong bottom line.

BILL MOYERS:What does it say to you that the real owners of the
nursing home, the private investors have created this maze of smoke
and mirrors that make it virtually impossible to find out who the
owners really are?

JOHN BOGLE:Well, that's so typical of much that's going on in American
finance, the way we structure these financial instruments, which are
stock certificates or debt instruments. But it's the same thing of the
removal of your friendly, local neighborhood bank holding the mortgage
and being able to work with you when you fall on hard times to some
unnamed, often unknown, financial institution who couldn't care less.

BILL MOYERS:These private equity firms that own these nursing homes
wouldn't even talk to THE NEW YORK TIMES. They won't talk to
reporters. I mean, there's no accountability to the public.

JOHN BOGLE: There's no accountability. And it's wrong. It's
fundamentally a blight on our society.

BILL MOYERS:What does it say that big private money can operate so
secretly, with so little accountability, that the people who are hurt
by it, the residents in the nursing home have no recourse?

JOHN BOGLE:It says something very bad about American society. And you
wonder — the first question anybody would have after reading the
article — how in God's name do they get away with that? Well, we have
all these attorneys that are capable of devising complex instruments,
and money managers who are capable of devising highly complex
financial schemes. And there's kind of no one to answer to the call of
duty at the end of it.

BILL MOYERS: And we're talking about some of the most powerful names
in the business. I mean, these are formidable forces, right?

JOHN BOGLE: They're formidable forces. But, I'm afraid--

BILL MOYERS: Respectable citizens, right?

JOHN BOGLE: Well, I mean, I don't know about that. But, it's certainly
-- it's easy to say that greed is taking — playing a part — greed has
a role in a capitalistic society. But, not the dominant role and--

BILL MOYERS: What should be the dominant? What is the job of capitalism?

JOHN BOGLE:Well, ultimately, the job of capitalism is to serve the
consumer. Serve the citizenry. You're allowed to make a profit for
that. But, you've got to provide good products and services at fair
prices. And that's the long term, that's what businesses do in the
long term. The businesses that have endured in America have done that
and done that successfully.

But, in the short term, there's all these financial machinations in
which people can get very rich in a very short period of time by
creating highly complex financial instruments, providing services that
can be cut back easily as in the hospital article, not measuring up to
basically their duty.

We all know that in professions, the idea has been service to the
client before service to self. That's what a profession is. That's
what medicine was. That's what accountancy was. That's what attorneys
used to be. That's what trusteeship used to be inside the mutual fund
industry. But, we've moved from that to a big capital accumulation —
self interest — creating wealth for the providers of these services
when the providers of these services are in fact subtracting value
from society. So, it doesn't work.

BILL MOYERS:So, the private equity nursing homes have added to their
wealth. But, they've subtracted from society the care for people who
need it.

JOHN BOGLE: That is exactly correct. Not good.

BILL MOYERS:THE WALL STREET JOURNAL editorial page celebrates what it
called the animal spirits of business. And as if that's the heart of
capitalism. What do you think about that?

JOHN BOGLE:Well, I like the animal spirits of business. I mean Lord
Keynes told us about animal spirits. And it comes out of a part of his
work that says, "You know, all the precise numbers and the
perspectives mean nothing. What determines the future of a business is
its animal spirits." You know, the desire for progress, the desire to
create something new. That's all good. But, it's gotten misshapen.


JOHN BOGLE: --misshapen.


JOHN BOGLE: Well, it's gotten misshapen because the financial side of
the economy is dominating the productive side of the economy

BILL MOYERS: What do you mean?

JOHN BOGLE: Well, let me say it very simply. The rewards of the growth
in our economy comes from corporate, largely - from corporations who
are a very important measure, from corporations that are providing
goods and services at a fair price innovating and bringing in new
technology — providing a higher quality of life for our society and
they make money doing it. I mean, and the returns in business in the
long run are 100 percent the dividends a corporation pays and the rate
at which its earnings grow.

That still exists. But, it's been overwhelmed by a financial economy.
The financial economy, which is the way you package all these ways of
financing corporations, more and more complex, more and more
expensive. The financial sector of our economy is the largest
profit-making sector in America. Our financial services companies make
more money than our energy companies — no mean profitable business in
this day and age. Plus, our healthcare companies. They make almost
twice as much as our technology companies, twice as much as our
manufacturing companies. We've become a financial economy which has
overwhelmed the productive economy to the detriment of investors and
the detriment ultimately of our society.

BILL MOYERS: By the financial sector, you mean?

JOHN BOGLE:Banks, money managers, insurance companies, certainly
annuity providers. They're all subtracting value from the economy.
They have to subtract. To be clear on this now — I don't want to
overstate it. To be clear on this, they have to subtract some value.
But, the question is--

BILL MOYERS: What do you mean they subtract some value?

JOHN BOGLE:In other words, — you've go to pay somebody something to
provide a service. It's just gotten totally out of hand. My estimate
is that the financial sector takes $560 billion a year out of society.
Five hundred and sixty billion.

BILL MOYERS: Where does it go?

JOHN BOGLE:It goes into the pockets of hedge fund managers, mutual
fund managers, bankers, insurance companies. Let me give you this just
one little example. If you didn't make a $129 million last year — I'm
presuming that you didn't. You don't rank among the highest paid 25
hedge fund managers. A $129 million doesn't get you into the upper

BILL MOYERS: And on the way here this morning, I saw a story that now
a $1 billion will not get you in the FORTUNE 400. A $1 billion!

JOHN BOGLE:Well, I spend a lot of time thinking about that. I mean,
you kind of asked the question, which I've asked in some of my work.
What is enough here? And the society is out of control. I mean, in THE
BATTLE FOR THE SOUL OF CAPITALISM, I talk about the frightening
similarities between the American economy in America, our nation, at
the beginning of the 21st century and Rome all those centuries ago
around the 4th century.

BILL MOYERS: What are the comparisons?

JOHN BOGLE:We have an idea that we are the world's value creator and
leader. And I'm talking not just about economic value, but, we like to
think of America as having the best values of integrity and
citizenship in the world. We're getting a little bit too much self
interested. We have our own bread and circuses. And they're a little
different than the bread and circuses they had in Rome. But, we surely
have our circuses whether it's sports teams or casino gambling or the
lottery in the states. And we see this not just in our economy, in our
financial system. This very short-term focus on everything. You see
it, sadly, in our government.

Everybody knows social security is going to run into crisis. We can't
run these federal deficits forever. But, everybody looks out two years
and says, "Will I be elected two years from now or a year and a half
from now?" And, the short term focus ultimately betrays the very
values that we have come to be used to in this great nation of ours.

BILL MOYERS: You said the other day to someone that we think we can
fight the war in Iraq without paying for it.

JOHN BOGLE:Well, we borrow the money to fight the Iraq War by some
estimates and they're not absurd estimates is running now towards a $1
trillion. We could be doing what the British empire did. We could be
bankrupting ourselves in the long run. And--

BILL MOYERS: You see us as an empire?

JOHN BOGLE:Well, of course it's an empire. We reach all over the
world. We thought of ourselves in many, many respects as the policemen
of the world. God knows we know we're the policemen of the Middle
East. And there are those say, even from Alan Greenspan on up or down,
that oil is the root of that. I mean, these are great societal
questions. Protecting oil, which is in turn polluting the atmosphere.

We have problems as a society. And we don't have to surrender to them.
But, we have to have a little introspection about where we are in
America today. We've go to think through these things. We've got to
develop a political system that is not driven by money. I mean, these
are societal problems for us that don't have any easy answers.

But you don't have to be an economist to know that a great deal of or
a minimum in our economy is coming from borrowed money. People are
spending at a higher rate than they're earning, and we're starting to
pay a price for that now. Particularly in the mortgage side. But,
eventually, that could easily spread and people won't be able to do
that anymore. You can't keep spending money you don't have. It gets a
lot of it, you know, and it wasn't that many years ago — maybe a
couple of generations ago — that if you wanted something, you saved
for it. And when you completed saving for it, you bought it. Imagine
that. And that wasn't so bad. But, now, we know that we can have the
instant gratification and pay for it with interest payments, of
course, over time, which is not an unfair way to do it. We're going to
pay a big price for the excessive debt we've accumulated in this
society both in the public side and the private side.

And it's no secret that this lack of savings in our economy — just
about zero — is putting us at the mercy of foreign countries. China
owns — I don't know the exact number — but, let me say about 25
percent of our federal debt. China does. What happens when they start
to buy our corporations with all those extra dollars they've got
there? I mean, I think that's very-- these problems are long term, are
very much worrisome and very much intractable.

BILL MOYERS: Your book is called THE SOUL OF CAPITALISM. Tell me what
you mean by the soul of capitalism.

JOHN BOGLE: Well, I try in the book a little definition from Thomas
Aquinas about the core of being — he's talking about the human soul,
of course — but, the core of being,the elements that give you meaning,
the values that you have-- the whole kind of wrap up of what makes a
human being a human being.

And that happens in a much more, you know, a much less profound way in
a corporation. There is in a good corporation and in capitalism a core
of being of providing goods and services, at raising the standard
living. And it's done a very good job at that. I don't want to demean
that. You know, we went from the beginning of time, to around 1800, —
the way people lived barely changed at all. And since 1800, the
Industrial Revolution, and capitalism around that time has taken us to
standards of living that are just — that would have been unimaginable
to anybody of that day. We have all the perquisites and ease and
freedom and safety of modern life. And so I salute capitalism for
doing that. It's just we've taken it too far. Today's capitalists are
different from yesterday's capitalists-

BILL MOYERS: How so? What's the big difference?

JOHN BOGLE:Well, I think much more they're operating on their own.
Instead of for the interest of whose money has been entrusted to them.
It's an element — it's what we call a bottom-line society, again. But
I think it's the wrong bottom line. I want to come back to the
difference between the financial system and the productive system. The
productive system adds to the value of our economy. And, by and large,
the financial system subtracts. And, yet, it's growing and growing and
growing. And this short term thing where short term orientation in
which trading pieces of paper is regarded as a social value. It is not
a social value. Some of it has to happen, don't mistake me.


JOHN BOGLE: But not as much as we have.

BILL MOYERS: What does it say to you that people seem so indifferent
to the fact that one tenth of one percent of the population owns most
of the wealth in this country?

JOHN BOGLE:Well, in the long run, I believe it's unsustainable. You
know, this is not going to be, you know, a country like France, say,
at the time of before the French Revolution. You know, the lords of
France, the kings had probably the same kind of distribution of wealth
we had today come by through long generations. Their own castles. We
have those castles in America now. But it says to me that, in this
society, it's not sustainable. There will be an outcry.

Even Allen Greenspan says in his book he's worried, new book-- he's
worried about this division in the society. He's worried about
dissatisfaction. He's worried about violence in our society. You can
only have so much of an advantage to those at the top of the pyramid,
and so much disadvantage that's at the bottom of the pyramid, before
you start to get some very difficult things going on.

BILL MOYERS: This seems to me to be your great concern, that this self
correcting faculty that is built into both democracy and capitalism is
in jeopardy?

JOHN BOGLE:Actually, I think it's fair to say it's in jeopardy. But
there's one sense that it's not in jeopardy. And that is, ultimately,
the system will correct. The bigger the boom, I fear, the bigger the
bust. In other words, you pay the price. It's not a self sustaining
system at this kind of a level.

BILL MOYERS: Do we need new rules?

JOHN BOGLE: One thing is, I believe, to have a federal standard of
fiduciary duty for money managers. They've come from eight percent
ownership of American business to 74 percent ownership of American
business. It's staggering, over unbelievable change. Without any rules
as to how they're supposed to behave. We have state laws of proven
investing and fiduciary duty and things of that nature. But they don't
seem to be working. And our founding fathers actually thought about
having a federal statute-- a federal corporate chartering statute. I
think we probably need one because if some of the states step up and
say improve their governance provisions, corporations will move to
another state. So the state system I don't think can prevail.

So a federal standard of fiduciary duty which demands that our pension
trustees and our mutual fund directors make sure that those pension
funds and mutual funds are operated in the prime interest of those who
have entrusted their money to them. And that includes responsibility
for corporate governance. And it will ultimately turn to be focused
more on long term investing.

When I came into this business in the 1950's, it was a business
focused on the wisdom of long term investing. We changed in that
period to a business that is focused on the folly of short term
speculation. And think about this for a minute. If you're a true
investor holding a company for the long term, you're well aware that
the value in that company is company's earnings compounded over time,
developing new products and services, developing efficiencies-- trying
to size up the proper corporate strategy, you know, making the company
more valuable. But, in the folly of short term speculation, you're
just thinking will that stock be worth more or less six months from
now or a year from now?

Give you a very specific example. In the first 15 years I was in this
business, the average mutual fund held the average stock for seven
years. Call that long term investing. Now, the average mutual fund
holds the average stock for one year. That's short term speculation.
So, if you're a speculator, you don't care much about ownership
interest. You don't care so much about corporate governance. Why vote
a proxy, for example, if you'll not even be holding a stock in three

The other part of it is,and this is really makes it a very difficult
problem to solve. And that is a little about of — I guess it's Pogo —
we have met the enemy and they are us. These mutual fund companies--
these management companies are now owned largely by corporate America.
Or international corporations — Deutsche Bank — AXA, big international
companies who have bought their way into the US financial system,
which is-- don't mean to demean that. But, they own these public
corporations-- giant public corporations like insurance companies, big
banks-- foreign insurance companies and banks own 41 of the 50 largest
mutual fund managers.

Now, what is the job of a corporation when they buy into a mutual fund
management company? It's to earn a return on the capital they invest
in that company. It's not to earn a return on the capital of the
investors who invested with that mutual fund. Now, in fairness, they
want to earn as much money as they can for the fund shareholders. But,
not at their own expense.

What we've done is have you know, what I call in the book, a
pathological mutation of capitalism from that old traditional owners'
capitalism to a new form of capitalism, which is manager's capitalism.
The evidence is quite compelling that today corporations are run in a
very important way to maximize the returns of its managers at the
expense of its stockholders.


JOHN BOGLE:Its CEOs, well, the upper level of five or six top
officers. And they get enormous amounts of pay for actually doing very
little. I'm a businessman. Listen, we all-- we chief executives get an
awful lot of credit that we don't deserve. Real work in companies is
done by the people who are getting themselves together and doing the
hard work of making companies grow--

BILL MOYERS: And, yet, these--

JOHN BOGLE: every day.

BILL MOYERS: These are the people who most often get laid off, right?

JOHN BOGLE:They get laid off. And, of course, the ironic part of that
is they often get laid off — used to be called downsizing. But, of
course, in today's America, it's called right sizing. They get laid
off. That reduces expenses. That increases earnings and that means the
CEO gets more.

Just think about the country for a minute. For an agricultural
economy, 95 percent, 98 percent agricultural when this country came
into existence. And even by 1850, half agricultural. Now it's about,
they moved from agricultural economy, to a manufacturing economy, to a
service economy. And now to a financial service economy. And the
financial service economy is what troubles me. Because it's diverting
resources from the investors to the capitalists. To the entrepreneurs.
To Wall Street. To the investment bankers. The hedge fund managers. To
mutual fund managers. And that is a negative to our societal values.

Where agriculture and manufacturing and services, I mean, I'm
perfectly willing to give a high value, for example, to art and poetry
and literature. They add value to society. It may not be easy to
measure it in a society that measures too much of what's not
important. And not enough of what is important. As the sign in
Einstein's office says-- "There are some things that count that can't
be counted. And some things that can be counted that don't count."

BILL MOYERS: John Bogle, thank you for joining me.

JOHN BOGLE: My pleasure.

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