Stock Market Regulation
By Arnold Kling
‘Jane Galt’ casts doubt on the deterrence value of the settlement in which Wall Street investment firms agreed to pay a large fine.
I don’t want this to be the opening act in some morality play, directed by Spitzer, in which the rest of America is absolved for speculating wildly on investments they don’t understand.
Meanwhile, a wire service reports that Vanguard’s index fund has gained in popularity.
A stock index fund run by the Vanguard Group was the best-selling U.S. mutual fund last month, as investors who have poured money into bonds showed new interest in stock portfolios, according to data released on Thursday.
In contrast to the nonsense perpetrated by stock analysts, Vanguard sends investors the analysis of experts informed by economic wisdom on efficient markets and portfolio theory. For example, their latest newsletter has advice from seven respectable experts, all of whom decry strategies that involve frequent trading. For example, William J. Bernstein writes,
The sooner [investors] learn about market efficiency and the importance of a long-term strategy that takes this efficiency into account, the better off they will be.
…turn off the TV, stop browsing the Internet, toss out their financial publications, and read books. There are two classics that everyone should digest before they invest a dime. Burton Malkiel’s A Random Walk Down Wall Street and John Bogle’s Common Sense on Mutual Funds.
The New York Attorney General can punish those who gave poor financial advice. But it’s more heartwarming to see the Darwinian market process reward investment firms that offer respectable economic advice.
For Discussion. The alleged abuses occurred while the market was going up. Should they have been prosecuted at that time, rather than after the crash?