Vanguard's Bogle on the 'Volcker Rule' Reforms

John Bogle, founder of the Vanguard Group, joined us again today. He took on Wall Street and endorsed the “Volcker Rule” reforms put forward by President Obama, based on the proposals of White House advisor and former Federal Reserve Chairman Paul Volcker.

Asked about the proposed reforms, which would re-draw the line between commerical and investment banking, Bogle had this to say:

JOHN BOGLE: It seems to me like the right thing to do. Largely because we’ve developed a system of enormous complexity, where people don’t understand the risks, where the banks and the bank holding companies…have gotten into all sorts of activities that have nothing to do with taking deposits and paying interest on them, lending the money out usually long and paying interest on these short term liabilities.

And that system worked pretty well for a long time. But we are — to state the very, very obvious — a long, long way from what we saw in “It’s a Wonderful Life” with Jimmy Stewart, that little savings and loan out there in Peoria or wherever it was. And that complexity has been very expensive, and in fact very expensive to the banks themselves. The market capital of all of our banks was probably in round numbers, the total value of their equity – common stock in the marketplace – around two and half trillion dollars only a few years ago. And it’s probably under $500 billion today. So these bank executives have cost their shareholders, if you will, $2 trillion. And yet they still get these huge bonuses. That’s a little different issue. But it just shows how badly this system is working. So we’ve got to do something, and I think the Volcker plan is a good start.

Steve Bartlett, who represents a financial services trade group, also appeared on the show today and said there’s no going back to “It’s a Wonderful Life”-style banking. He pushed back against the idea of reinstituting walls between different kinds of banking. Those walls had been in place until 2000, when the Glass-Steagall Act was repealed, and deposit-taking banks started operating in different, riskier, ways.

STEVE BARTLETT: …The difficulty with the so-called Glass-Steagal is that it was a concept to try to separate into fifty or sixty different categories of how to offer financial services. So you have a credit card is separate from a checking account, is separate from an insurance coverage, is separate from a 529, is separate from a mutual fund. And frankly, that whole system had simply broken down by demand of the customers, who wanted financial services and still do. Now, they do want those financial services to be offered in a safe way, with better regulation. And a lot of that regulatory structure broke down and it needs to be rebuilt in a much better way. But restoring back to “It’s a Wonderful Life” is just simply not feasible and would do a lot of harm.

TOM ASHBROOK: John Bogle, simplicity’s too much to hope for?

JOHN BOGLE: No, I don’t think it’s too much to hope for. I mean, we’re in a complex world. I’m the first one to say that. But investors have to wake up to the fact that all this complexity has produced virtually nothing but losses for them.

You can listen to the full Bogle-Bartlett exchange today. On Point has looked closely at these issues before. A recent hour with MIT’s Simon Johnson is worth a listen.

Please follow our community rules when engaging in comment discussion on this site.
Dec 1, 2015
Bethany Winder, a nurse who lives in Colorado Springs, Colo., plants a sign in support of Planned Parenthood just south of its clinic as police investigators gather evidence near the scene of Friday's shooting at the clinic Sunday, Nov. 29, 2015, in northwest Colorado Springs. (AP Photo/David Zalubowski)

Women’s health, American politics and gun violence after the Colorado Springs Planned Parenthood shooting.

Dec 1, 2015
In this 2010 file photo, Dr. Tom and Ann Earley work a Salvation Army kettle with their dog, Bocce, in an Atlanta, GA-area shopping center. (Flickr / Vicki DeLoach)

On #GivingTuesday, we’ll explore the trends in giving now from crowd sourcing to big charities and beyond.

Nov 30, 2015
Shoppers walks in front of a holiday display Sunday, Nov. 22, 2015, in San Francisco.(AP Photo/Marcio Jose Sanchez)

From Black Friday to Cyber Monday and beyond, we’ll add up the dollars and trends and bargains of the 2015 holiday shopping season.

Nov 30, 2015
United Nations climate chief Christiana Figueres, center left, Minister of the Environment of Peru and COP20 President Manuel Pulgar-Vidal, center right, and French Foreign Affairs Minister and COP 21 President Laurent Fabius, center, pose for photographers during a press visit to the COP21, Paris Climate Conference, site, in Le Bourget, north of Paris, France, Sunday, Nov. 8, 2015. (AP Photo/Thibault Camus)

World leaders converge in Paris for the big climate talks. We’ll look at what it will take to get a global climate agreement.

On Point Blog
On Point Blog
Fresh Ideas For Your Thanksgiving: Recipes
Wednesday, Nov 25, 2015

Did our Thanksgiving 2016 episode make you hungry? Good news — we’ve got recipes right here.

More »
Karl Rove Still Won’t Get Involved In The 2016 G.O.P. Primary
Tuesday, Nov 24, 2015

Karl Rove may say he’s not endorsing or getting involved in the 2016 G.O.P. presidential primary, but that won’t stop from offering advice on how to beat Republican front runner Donald Trump.

More »
Roger Cohen And Barry Posen On ISIS
Monday, Nov 23, 2015

A brief, but illustrative exchange between Barry Posen and Roger Cohen during our conversation on ISIS today.

More »