 I saved the best from last. I got a note from Taylor that he asked me to read to the crowd. So, says dear Mel, if you have the opportunity, please relay this message to my friends at Bogleheads 10. My first visit to the Vanguard campus was during our second Boglehead reunion in June 2001. I will never forget the thrill of meeting and listening to Mr. Boglehead and meeting face-to-face with individual forum Bogleheads whom I had come to know and respect. It's an honor for all of us to be part of Mr. Bogle's great crusade to give ordinary investors a fair shake. Say for the moment, I know that someday each of you will look back on this occasion as three of the most memorable days of your life. Best wishes, Taylor. Now, this is a special part of the program that we had started probably five or six years ago and we called it the Barside Chat. And there's nothing organized about it, Bill and Jack are going to ramble in any fashion and talk about any subject they want. Just about any subject they want. That's an inside joke. So anyway, I'll get out of the way. I'll turn it over to Bill and Jack. That start off would be worthwhile for those people to hear. It's always a story that, you know, you would be heard before it's worth hearing again of how the Bogleheads and Jack got together and how it more or less got started from Jack's perspective. It was, I guess, 10 or 11 years ago and when I was speaking at a conference in Florida and this wonderful gentleman came up and chatted with me and that turned out to be Taylor Larmor. We talked about this and that. We got acquainted. I gave a speech that was so anchored the investment salesman at this conference that the guy running the conference walked off the head table. And all I was doing was telling him the truth. In any event, with that as the beginning, we struck up a wonderful friendship and got to know his wife, lovely wife, Pat. And it became greater and greater than we had. I was speaking down in Florida then again another year, I think a year later. And he said, why don't we get the Bogleheads that are down there at this maybe company's conference and we'll all get together. So I come down and get off the elevator and there is a sign saying, as it was called then, Vanguard diehards meet here. And I thought, wow, this is getting a little out of hand. So we went over to Taylor's lovely condominium over on this game bay and just had a nice evening together. I think there were about 15 of us. I can't remember, not huge. And we just had a great time together. I typed out a little note to all the rest of the diehards and we went on from there getting more and more formal each time. I shouldn't tell you, I think this is okay to tell you, and this is very much related to it. What went on in Bangor last night was really, I thought, incredibly wonderful. They turned out a wonderful group of people. A fine panel, some of these guys, the guy that was Rick Ginoni, Ginoni who runs our ETF effort, our newly expanded ETF effort. I went over to apologize him for causing him so much trouble. And he said, basically, you're who we talk about all the time. You have the way of doing it right and we want to do it the same right way. So I was very relieved by that. And I also said, how long have you been here, Rick? And he said, 20 years. And then I said, awarding. I just can't believe that you can be in Vanguard in 20 years. I don't think I've ever met you before. I just hate that when it happens. I always talk to people on the lunch line and that sort of thing at the galley. And if there's a woman I kid would kiss to make up for it. He said, no, we didn't meet. He said, you talked to us on my first day here. So that was a nice part of it for me. And I know the guys that are doing the foundation. And I thought Rebecca Katz, who used to be kind of a shy introverted person, was the most wonderful MC. And she's been a kind of a nice ally of mine for many, many years. But when the idea of Bogleheads became the Bogleheads, I guess under the influence of Taylor and perhaps Mel. And it was not political time in Vanguard. It was not really all that welcome and designation. Very first time. This is a funny story, I think. It was the very first time that you had a meeting in Valley 4 of somebody's farm out there. Do you remember that? Anybody remember that? And so I invited everybody over to Vanguard on a Saturday to spend a half a day at the office. And I was told, you wouldn't be allowed on the campus. Wow. They were saying you were all coming to Philadelphia and I was accused and changed their mind quickly. And I was accused of blackmail for planting the article but I hadn't planted the article. But in any event, we then got to a more welcoming stage. Not so good on the little things that mean a lot in these kind of meetings. So they stepped up their act last year, a nice little formal program. I voted or asked a whole lot of staff around there to help me have a wonderful panel. And I gave it like little goodie bags or something like that. And I don't know that they didn't give me one. No, I had to leave early. I promised to leave home for dinner by 7. And we found the 8-8, I think. But in any event, now you're really getting it, girl. Everybody loves to have you there. They put on a real show for you last night. And I was really immensely crowned by all those people representing us out there, not only on the stage and introducing our MC, of course, I mentioned, but also that people will have had their little ETF foundation booth and investment advisory and so on down the line. So it's for each kind of a full fruition where you're really integral to this community. And you should have been all along. I mean, you represent who Bangor it is. We don't usually get 150 or 60 or 70, whatever it is. People in one place, the stockholders that are basically mission and life. So it's just been a wonderful thing. And knowing Taylor from the very beginning was wonderful. I actually wrote him. I tried to stay in touch with him a little bit. I never know exactly how his health is. But I wrote him about a week ago telling him how we miss seeing him here. And he wrote me back. I think it must have been the same day. Oh, maybe it was just a coincidence that he wrote me at about that time. So that was a beautiful part of the whole thing. So I very, very much appreciate it. I don't want to make this too long, Bill, but I so much appreciate your being with me and supporting me. And we're at Denver. I don't know how many of you remember Denver. I got you all invited to the Financial Analysts Federation meetings. And the first question they asked me after I was speaking out there. And the first question they asked me is, who are the vocal heads? How can I join them? So you're doing a great job. You're fellow investors. And I'm just thrilled to be with you. And I'm sorry, by the way, I hope this mic is, I'm using it a little bit better than yesterday if I don't mic those things. But in any event, so it's onward and upward. And I'm proud to be part of you. And I never would have thought that my name as a board would be copyrighted. One goes through, has to go through in order to move. And one was a pile of letters. And this goes back to about, it was a letter, it went back to about 1990 before I had gone any writing. And it was in response to a very whiny letter I had written to Jack about why there wasn't an international bond fund. And the letter was two and a half pages single spaced, telling me why I was wrong. And that's Jack. I mean, how many corporate chairman are going to give that sort of response to the corporate customer? A very small and unknown one. So that's why Vanguard is what Vanguard is today. I thought I might start with something that we perennially talk about, which is the age equals bonds rule. Which is, when might you want to deviate that, and for that perhaps we'll segue into, you know, what alternate strategies you might consider or might not consider for someone who is retired and concerned about longevity, a 70 year old person not working, who perhaps needs a five or six or a 4% draw down. Does age equals bonds work for that person? Are there other strategies more better than these and strategies that they might consider? First of all, as I've tried to say, the age equals bonds is a wonderful way to begin, a wonderful kind of framework for what you think for the simple reason that when you're young, as was discussed a little bit yesterday, when you're young, you depend on human capital for your wealth. And when you're older, you depend on investment capital for your wealth when you're retired. And so, the reality is that you've got to think a lot more about income when you're older. There's, when you mention Bill as something about five or six percent withdrawal rate, that's just, almost no matter how old you are, that's just excessive. And I'm starting to wonder a little bit whether in the environment that seems most likely in the years ahead that even 4% might be on maybe three and a half percent. There's risk in all this whenever you're taking money out. So you want to be very careful that that's the basis of it. There are, to me, no strategies that go beyond the basic public markets that give you the greatest chance of reaching your goals. But the public markets are things, as I mentioned in one of those late slides yesterday, the one thing you can't control is return. You can control time, you can control cost, you can control risk, but you can never control return. And so, I don't know what other options there are out there. In a way, I don't pride myself on my great consistency. I'm fairly consistent, but I don't think that we're barrenly so. But even as I say, beware of reaching for yield. I was telling you, you want to think about reaching for a little yield, because they'll be here in the bond index, because the treasury bonds so dominate the industry, the index. That was not the case when the bond was formed way back in 1986. And the yield is a pathetic 2.3, not pathetic in this market, but not particularly attractive, would be 2.3%. So I think you can go into corporates, which can give you as much as four and a half or five investment grade corporates according to the data. And so we have to have, if it's pretty easy to do the math, they have to have a 2% or 3% default rate to get you down to the treasury level. And you make a judgment, can the default rate be that high? The answer is of course it can. What are the probabilities that it'll be that high? I think very low. And as always, in Pascal's famous wager about the existence of God, you've got to consider not only the probabilities, but the consequences to you. Another variation on this, and someone said, maybe one of the mogul heads, I'm not very consistent here, but I say you want to take Social Security into account. Of course you want to take Social Security into account. Social Security, as long as it functions, which I think will honestly be a long time, and if it fails, you still are going to be getting 80% or something of what was promised not to expect that to happen. But you have a great inflation-proof bond portfolio that doesn't fluctuate in value and goes up pretty much year after year, even a little bit of inflation. So if that's your bond account and you have, say, a typical Social Security account or someone around 65 who's had a successful, reasonably successful at least working career, this could probably have a capitalized value. I think the numbers around $300,000 gave her a take. So if you're 100% in equities, you're 50-50. And that income stream, and this is really what we want to be thinking about, you know, there's so much that we've kind of lost sight of in this world. And as we look at total return, what you spend, what do you care about, in fact, about total return? Dividend income keeps going up and up and up and up and up, as it typically does every year. Well, I quickly add probabilities and consequences that in 2008, the dividend yield in the S&P index went down, I believe it was 23%, something in that range. The largest decline, one of the three largest declines ever had in history. So you want to be very careful as long as the income comes along. When you're retired, that check comes in, the Social Security check comes in, and you shouldn't worry about capitalization. So I don't see going outside the public financial markets to try and do better. It's a little bit like if you're starting to lose, a little bit like you're going to the horse races, and you lose everything that you've got except the 100 bucks or something through the first, I don't know how many races they have, let's say 11. So on the 12th race, the last race, you take that $100 and bet it on a long shot or a recoup. That is not a good strategy. So, is that responsive? Yeah, I think it gets fairly deeply into the issue. What I'm thinking of are people like Steve Bode and Rob Arnott who've written Long and Hard, and Moshe Bolecki as well, who say that really, when you're retired, a conventional asset allocation goes out the window and what you really ought to be looking at is defeasing your living expenses. And so, to my way of thinking, there are three things that can do that. You've already mentioned one of them is social security and you're right. The return on the public markets is not great, but the return on deferring your social security from 66 until 70 is 8% per year. So that's certainly one stretch. You know, that's got a problem, which is that the federal government could mean to have social security when each item is behind the 8-ball. So there's a risk to that, even with social security. Tips are an excellent strategy, but then you have the risk the federal government could rejigger the inflation when there's still a risk there. And then finally, you know, you can get an inflation-adjustable ability. The problem with those is two-fold. Number one is the companies can go really up. I wouldn't want to bet on the survival of any company in the current financial system. Any insurance company, I don't know. And in a systemic amount, you know, the state guarantees, the state insurance funds would be a speed bump. So that really doesn't help you. And then finally, the insurance riders that you buy with a lot of variable annuities really have some limitations. Vanguard has, I think, has like a 3% inflation cap, which isn't going to do you a lot of good if we have hyperinflation. So I think what the rational person might do is to consider some combination of those three things. Of course, you know, really I guess the other issue is if you're someone a real bowhead and you wind up at age 70 with more money then you know what to do with. And then you can possibly spend, for free, a lot of people are going to have. Then you have then you have, you know, this large pile of assets on top of it which really, you're not investing it for you. You're investing it for whoever your beneficiaries are, whether they're your relatives are charitable or maybe you want to give them money to the government. You know. I don't say that in just I don't mind paying taxes to the government. I'm sorry, sorry. Sorry, Warren. It's just professional money managers out there trading with other professional money managers who are just making the group which is certainly true. But I think there's something that's even more profound going on here is we have now reached the point where it's not people trading with other people. It's computers trading with other computers. It's a wonderful speech that which is on, I think it's on YouTube, it's on the American Financial Association website. Ken French's 2008 presidential address very understandable in which he talks about this phenomenon. You know, I've actually talked to him about this. I thought he would be reasonably sanguine about all the liquidity that's out there that it really improves things for passive investors, but he doesn't think that that's the case at all. Any comments on Asia? Well, that's actually an interesting subject. I've argued with people like Cliff Asnes about a great hedge fund manager with a great respect and other people. In fact, we've been doing some work with a new book on the impact of high-frequency trading and Michael got in touch with my assistant Michael Nolan, got in touch with one of the guys that had written a big article about it and I decided I would go see him and talk to him about it all. I really want to get into the weeds and see what's going on there. But for a long-term passive investor, I have to say I don't think it matters. Trading has done very little prices. It adds a lot of volatility in the market. But if you're truly a long-term investor and look at your statement every year or even better every 20 years or even better only when you retire, stop looking at their statements and just throw them in the ash can every year from age 21 to about 20 K until age 65 when most people retire they would probably go into a dead faint when they opened that final statement for the first time in 45 years they'd have so much money and they wouldn't believe it and part of that, of course, is an inflation effect. So I don't see that inter-day volatility and particularly conducted at a very low price is a negative for passive investors. Now, people disagree with me and I'm trying to get these people in touch with the traders people of long leave who I respect very much have written the SEC a very detailed letter so detailed and so long that I obviously couldn't digest it but they're very concerned in the execution of their own transactions but don't forget the passive investor isn't doing transactions so I honestly don't see the harm and I don't like it. It has some very bad effects and one which I'll spend a lot of time on in the new book. I think the main two things as long as it's got a low cost and as my son who's a hedge fund manager, as you know may know, market neutral and reasonably successful and he can beat the Treasury bill year after year pretty much once in a while he doesn't but he said, how would you feel about all this trading but we're free if there were no frictional costs and we got to the point where the thing is almost free there are almost no taxes because 70% of the stock is owned by institutions endowment funds, pension funds and half all mutual funds assets for tax deferred 401Ks and the other half it is the whole mutual fund manager sadly don't give a darn about how many taxes they inflict on you that are paid on after tax returns so the taxes are really out of the frictional cost equation now and commissions have come when I came into this business like 25 cents or 30 cents a share and not just on 100 shares but if you bought 100,000 shares you'd pay a thousand times as much if you can imagine no volume discount and all this had to do with negotiated commissions back in 1974 so I don't see the harm of the long term investor but I'm going to continue to investigate the look and see if I'm right or not and you try and keep an open mind and I spend a lot more time on the subjects that people disagree with me on than where people agree although that said I have to say to Bill I think the captain of his is a band club as an article an interview at the Journal of Indexing I guess a couple months back in which Bill answered a bunch of questions other people do and I couldn't find one single thing to disagree with you know we have disagreements which we're going to talk about as for future returns which you mentioned yesterday I want to spend a minute on that but there aren't any easy answers and when you think about going back to the grab a moment of the question and when you go back to divising or making sure your liabilities have the same kind of rise as your asset I think that's a great kind of thing I think it's a great idea in a way but life is not that neat you know you say well I expect to live to 75 let's say I hope in my case at least and so you've devised till age 85 and then you died early or you're still alive and so and then we talk about as Bill has talked about college funding you've devised you have to work pretty well and then you know I think most people want to leave their children something well that's a good idea I'd leave to this in mind but so your divisement period is very very difficult to determine and so even the global answer is the age based thing it's just an approximation a rule of thumb if you want to be high class heuristic okay well I'll throw just a small problem out just a tiny one which is that you know I've spent some time the past year or two thinking about tips and they're a fascinating asset class and it became even more fascinating in 0809 when they underwent just you know a larger decline in capital price than I think anybody had ever thought possible and long tips fell something like 25% between the top and the bottom market in 08 fascinating asset class because they demonstrated they're very risky in the short term and yet they are absolutely riskless in real terms in the long term if you hold them until maturity so they're only riskless when they're held until maturity so they are the perfect asset class to the fees or to offset your liabilities at given stages so the ideal strategy if you're going to offset your liabilities your future liabilities with tips is to buy a ladder a ladder you know every one year intervals whatever you want to do it's quite possible because I think there's so little gap between 29 and 32 you'll be able to do that soon enough maybe that's gone now but in any rate in principle it's practical so my suggestion is that you should never invest in a tips fund for at least two reasons one is you can generally buy tips cheaper even than the cheapest tips fund and secondly you might need the money at some point and if you need the money at a point where tips are how to move kinds of liquidity wrongs they had an 0809 you know your tips fund is going to have to take a haircut if you're going to need that money out so I think estimating asset class in any number of ways I think the proper way to use them is not in a fund but in a ladder Jeff I want to ask you a question Kathleen Ryan wrote in the comments in a question about you know whether you were born in 1929 you know yeah exactly but it raises another question in my mind is that certainly the depression affected you affected me fairly directly as well my parents grew up right in the middle of it my father started his law practice in 1926 if you can imagine small family law practice so you know I learned from my parents about the depression and what it mean an enormous amount of that rubbed off when we as well and then we entered this age of 30 people took on debt the sky was the limit and then in 1809 a lot of people found out that it's not all beer and pizza and so the question I have for you is that do you think anything fundamental changed about the tournament of investors people in general in 1809 yes I do and I think it's kind of the tragedy of American finance we can teach and teach and teach and teach and teach but finally people learn from their own experience the great trick in life is to learn from the experience of others not so easy to do so I think they learn more about risk in the market we had this incredible consecutive decades of 70% stock returns and as they would say have that baked into their expectations that's absolutely absurd and this gets a little bit to eventually they're going to look at things I believe with the same kind and Bill will call it the Gordon model very close to what I call the vocal model modestly enough which is even then yield plus earnings growth plus or minus P.E. change is what determines returns and that's not unpredictable as I mentioned yesterday over the long run I want to quickly add because someone asked me about this I fail to make it clear which is pretty disgraceful on my part and that is those were all nominal returns so if you're looking at 3.5% bonds and 7% stocks you're looking at real returns I was sort of vaguely assuming and you don't have to assume any to do those numbers you've got to say what's the inflation rate going to be and I was vaguely assuming 2% or 3% I don't think we can do much better than that 2% looks like a better bet now as you heard a little bit last night I was using 3% that gives you a nominal return on stocks of 4% before expenses before investor behavior and as we all know particularly in ETFs there is between fund returns and investor returns which I showed you yesterday I just showed you the ETF sign fund investors are subject to the same disease but just in a milder form God knows what those people that went with Bill Berkowitz at Farrell who's down 30% this year that's a pretty handy drop in a year where the market is a sense of the close yesterday S&P anyway is down about 2% that's a 28% gap and those kind of things can happen people pour their money into the winners as Bill said one of the things I was reading two words explain why the mistakes you made the first word is Bill and the second word is Miller and so behavior is a big problem although let me just say it's Bill about this and we all talk about behavioral problems among investors there are books written about it and erudite scholarly books which shows a mutual fund behavior but in final analysis Bill why is behavior a problem because your behavior is inevitably offset by somebody else's good behavior that way or another that's exactly the case for every winner and what I like to say is that investing is an operation in which wealth is transferred to people who have a plan and can stick to it from those who don't and can't and the people who let their behavior I mean my behavior you admit it yourself that you feel the same impulses certainly so do I I imagine everybody else miss audience does unless you suffer from severe asperger as well and by the way I happen to believe that Asperger's why not Asperger's is probably a very enormous advantage in any professional investor if you read Michael Lewis's book the big short one of the people there who happened to be an unsuccessful neurologist as you can imagine was very successful exactly for that reason for people's emotions so it's a continuum and Bill Sharp puts it another way he describes convex and concave investors people who follow momentum followers and rebalancers and Bill believes they're exactly balanced off in each other but his central insight is that in a world that is dominated by momentum players, rebalancers who are hopefully the kinds of people who will profit and I think that it's fairly clear what world we live in we live in a world that's dominated by emotional people who are falling in momentum that's not to percussive persons on people who've raised momentum in fact, like your son who do a very good job but most people don't do it as your son does you know I happen to think that both the model is greatly superior to the Gordon model I know what the first two terms are before I get here and so I wait with Bated Brett and you tell me what the third term is which is the change in P8 and would you mind repeating that? you know you came here during the very first ones and you basically predict a return of a nominal return of zero I think it was under 2002 or something like that or 2003 and everybody gasped and you were of course right so yesterday you came in and you said that it's minus 1% and it's a small quibble I expected you to tell me that it was zero or even slightly positive so why are you saying minus 1% why do you think the market is still overvalued? well the minus 1% I think was what I the formula would have shown for the decade beginning January 1, 2000 and then December 31, 1999 and the reason I think the market now may be a little bit overvalued is I do like the Schiller model I know a lot of people do not 10 year average like two things about it I think I mentioned yesterday that they're worth repeating one he uses reported earnings after all those bad things that corporations don't include in operative earnings so they're much lower year after year after year the tune of billions and tens of billions of dollars in earnings for the S&P company they're just plain overstated when you use operating earnings but that's what we get so I like Schiller for using the correct earnings number and then the market is full of big short term events so 10 years seems like a more reasonable thing to do than looking at the past year and of course to make matters worse so many people Wall Street has this bullish bias as everybody knows and so they're looking at next year's earnings now whatever they are they have no idea what they are but they're going to be bigger than this year's of course because your job is to predict something good and if you don't this Merrill Lynch people may be so a lot of others the economists that forecast declining markets in the coming year lose their jobs I mean they really literally do it's not popular to be a bear on Wall Street so as Schiller gets over that they're looking at the new forecast and I think his number says the average for the last 10 years I think it's 17 or 18 times and I think we're around by 3R now the average I should say long term average is 17 or 18 times earnings and right now I think it looks to me like we're around 20 or 21 times earnings now that's not you can drive yourself that's as I probably got to yesterday that's why I use the slide rule instead of a calculator to do these things they'll keep me from precision where precision is not merit in anything that we do we just don't know about the future one of the classic jokes about economists is they used to ask how do you know that economists have a sense of humor and the answer is because they use decimal points well my last sort of direct question to you is this you do a lot of CNBC Jack and the question I have is we all have journalists I think who we respect a great deal I think there's some people on radio particularly in Piagra who are spectacularly good but you also talked to a lot of people on TV and you did have very nice things to say about them and so the question is is there anybody on television that you talk to who do you have some respect for absolutely Jim Kramer I guess the one that comes closest would be Tyler Matheson who I've known for about 20 years more than 20 years and he wrote some great stuff in Money Magazine when he was an executive the triumph of indexing in was called he wrote that in I think 19 well I know exactly when now that I think of it he wrote that way back into the hospital for heart transplant and he said it is the last words where you remember these sometimes you were right Jack you were right it was 1995 and the world has changed radically in favor of that proposition ever since he also getting back to the forecasting thing he said after he interviewed me again after the heart transplant which was about a year later what did he say some proof that I actually had a heart now or I had a change of heart I guess I don't know I don't know I thought about my little formula and I said probably between 7 and 9% over the next decade and they turned out to be 8.3% this is not a foolish exercise and it's not always right but you do know and peeps are high they're up to go down I mentioned yesterday they're up to go up so the one thing we don't know I'll turn the tables a little bit on you Bill and I should tell you a little inside story I wanted to be briefed on Bill's book and so I have one assigned copy beautifully inscribed by Bill quote in my office quote so when I got back there between our sessions yesterday I looked up to see how Bill dealt with Armageddon is there any way of dealing with Armageddon really Kevin had stolen my book he says he only borrowed it but we retrieved it but I still didn't have to look so let me ask you is there really I think we live in an extraordinarily fragile world and we take for granted pretty much because we're Americans as Woodrow Wilson said the only idealistic nation on earth we take for granted kind of a similarity to the future to what it's like today in many many ways we don't really realize how much for example technology has changed the world because we live with it every day and when you get 10 years ago it's different and it says a lot of things about our economy because technology is only at the beginning I think of its impact on us that impacted me much because I'm not smart enough my grandchildren helped me when I'm in trouble and so is there really a way of dealing with Armageddon when we're at a stage in the world history is I think remarkably different certainly different can go into ammo the answer that translates down to no there really is not one of the joys of being a student of economic history is that it enables you to look at what's happening in the financial markets and place it in its historical context hard to recognize bubbles and appropriate to the job hard to recognize real panics and appropriate panics but again you can be right most of the time but the real frightening thing about knowing some economic history is that you also realize there are circumstances in which you are utterly helpless if you were a citizen of Hungary during the post-war period or in Germany during the early Weimar Republic there was nothing you could do or Zimbabwe more recently there was nothing you could do about you know gazillion percent inflation bonds actually disappeared I think the value of stocks in Weimar Germany declined by 99% and that's there's just nothing you can do about it and that's also why when you start working with these portfolio these Monte Carlo simulators these retirement simulators that tell you that there's a 95% survival rate of your portfolio in 30 or 40 years of retirement that's fiction there's no such thing as a 95% survival rate of any society over a 40 year period because that implies survival of a thousand years that doesn't happen in history and the other answer I guess and it's sort of a ninsing sort of thing to say is that sometimes as an author, particularly when you're not a Jack Statue you don't have as much control over your title of your book as you would like I thought you were going to say something about gold and it would be a kind of refuge but I do know very highly placed Wall Street are one of the veterans one of the really best people in Wall Street's history I'll remove all that by saying this one happens not to be Paul Volcker but he's really worried that the United States is going to go bankrupt and he wants to do something in gold and maybe he's already done it and he didn't quite make that clear to me but he said he's worried about leaving it in the bank because when the bank fails he won't be able to get his hands on it and that's probably a good definition other than Hungary from Armageddon and also Bill there are things in your birth of plenty showing that the world went from infinity to about I guess the number is 1750 or something without any measurable progress in the way it lived and then we went into this era of steady growth for years and years right up to today and continuing into the few tomorrows ahead at least is there any chance that's going to change is that upscale growth of the world economy built into built into the way we live today and the other related question is which I spent a little time on in my book The Battle of the Soul of Capitalism the American Empire looks to me in many ways like the Roman Empire and at the very beginning of the book I quote Gibbon what he said about the Roman Empire at the beginning and I just changed the half a dozen words and it sounded exactly like America which is another I have to tell you this funny story and I said that to the Yale University Press I said no I want that note of the original Gibbons words on the same page as the footnote and they said at Yale University Press footnotes are placed in the rear of the book and I said well in that case I guess I'll just have to find another publisher so the footnote is right there where you can see it and I do observe and this is true much as we don't want to pull the idea in our mind for very long no empire has ever lasted forever you know that's life that's history and nature the whole lot of reasons going to that so coming on those things well two questions number one is you know since 1820 approximately per capita GDP in the world has grown in a real sense in real terms by about 2% per year which basically means by the rule of 72 that on the average the life of the child is about to vice's prosperous as the life of the parent and I know that seems like a dubious proposition this particular year in the past couple of years but it's a function of technological advance all right and I don't think that current economic difficulties that we have have slowed down technological advance once simple that I'm reasonably optimistic at least in the short term but if you do the math you know 2% real growth over millennia leads to an impossible degree of wealth you know in every way worth a spirit several light years in diameter so you know we're in turn over I don't think that anyone knows the answer to that question since we've only been in this regime for the past 200 years or so you know the answer the obvious answer seems to be that we'll experience some catastrophe we'll put a stop to that or at least level it out but interestingly I did have the opportunity once to sit down at lunch with a fellow Obama who's a very famous economist and who's thought very deeply about these kinds of issues particularly about the relationship between technology and growth and he just smiled at me and said of course we're going to become that because technology will continue to advance and there's nothing that's going to stop that so you can at least one very smart person who's thought of that very deeply has made for the very that you know has made exactly that case you know relating the decay of our society to the decay of the Roman Empire first of all I think that our institutions are better than Rome's certainly we're not going to lose our place in the world as the leader of the world's economy I mean you know in 1945 we produced half the world's industrial output and it's been going down since it's actually leveled off over the past couple of decades and around pretty close to 20% it's not decreased that much in percentage terms but eventually you know we have to get swamped by other developed countries particularly those in Asia that's not necessarily a bad thing our piece of the pie will still the slice of the pie will decrease but we'll still have the actual size of the pie is going to increase and the nation to think about is Britain I mean Britain went in 1900 from ruling the waves the world's greatest economic and military power to you know right now it's basically an opening of the import with the nuclear deterrent and you know would you rather be a citizen of the UK now or in the year 1900 I shudder to think what it would be like to be an ordinary person in the UK in 1900 I mean you have a society in which something like 20 to 25% of people don't employ that they were in domestic service alright that's not the kind of society I want to live in so I'm reasonably optimistic I suppose I'm always optimistic but I'm just I'm trying to think a little bit more about it the hardships that we may be doing out there I worry terribly about this unusual unemployment situation it is unusual much longer long term unemployed and that's over a year say unemployment benefits running out and what to do with our fiscal problems come into this so I'm a warrior but I'm still well aware of the fact that when anybody else in the face of this globe wants to get out of their own country there's only one country they really want to go to and immigration's been a huge part of the American the epic of the American history the American I don't know values American hope, American entrepreneurship all that kind of thing and you see a lot of it still in many ways look around your town you used to think these were hardware stores that were selling nails but it turns out they're another kind of nail thing you're starting out so I still see the good side but I do worry a lot about whether our institutions which are the best in the world and our property rights are the best in the world there's no question about that we have more stability than just about anybody else in the world and what's going on in Occupy Wall Street is I think not a trivial event it's sending a message out there and I worry most about whether and I'd be interested in your comment on this bill particularly and what I see really worries me about America in a way anything else is bigness corporations and merchants and they get bigger and bigger and bigger and this includes vanguard I mentioned yesterday in mutual funds in industry history 16-17% whatever it was and it's not going to go down but we don't have the same kind of problems typical big companies do but they merge for accounting reasons they merge for power reasons they merge for compensation reasons and corporate America is a vital part of our nation's progress and yet you see the management being in many respects corporate management being in many respects and divorced from the interest of their shareholders and the shareholders of course I mentioned yesterday well the double agency society and don't care because they're not direct shareholders they've got their own agents and the mutual fund agents aren't doing their job and nothing is going to happen very good until we can restore some sense of fiduciary duty to our society and I mentioned that yesterday but I think that's absolutely crucial to resolve these problems there not going to resolve themselves there's an old saying which you're all familiar with you get the government we deserve man is that whatever it's really true today I'll answer that question as best I can until I see mail waiting frantically at me but basically you know I couldn't agree with you more I mean if I were to step back and say what were the real risks that we face now and it's always you know you never see the truck that's going to hit you but the truck that I see is too the quantity of our dimension which is that we have a system, a financial system which is derivative based which is lightning fast is extraordinarily complex and linked and if you're a systems analyst when you say complex and linked what that equals is three mile island you have a system that can very quickly spin out of control and I think what we saw in May of 10 flash crash was just the tiniest taste of what we could see if things go seriously and unexpectedly haywire you know the other thing is that we've you know the tarp I think was was the right thing to do I think that I shudder to think what would have happened if they hadn't bailed out the financial system but at the same time what do we have now we have something that's even worse we have you know instead of having n large banks we now have n minus 2 large banks and so too big to fail has gotten a whole lot worse I think the tarp was the right thing to do I think they can retrospect politically the correct thing to have done would have been to send Elizabeth Warren out in late 2008 go to the banks and say what part of we're bailing you out don't you understand and then seize the banks because they were insolvent including Goldman they were all insolvent and that would have avoided the political problem that we have right now which are people who are angry at all the big bonuses and the fact that Wall Street is fatter and more profitable than ever we should have done to the whole system that we did today aren't you Jack Duke what do you think about that I agree with the financial system it's the root of all this we treated it much too graciously in this troubled asset repurchase program I believe it's correct to say that no troubled asset has ever been repurchased and I believe the bank stock gave the bank's capital but aren't I correct we didn't buy any of those mortgage bonds collateral debt obligations from the banks so tarp I'm always induced when people mention it I'm also struck by the fact as you're all reading in the days and yesterday's papers that we have a simple proposition I wanted to bring back Glass-Steagall actually wrote about that in 2005 the act that separated investment banking from deposit banking or commercial banking I said bring back Glass-Steagall and that wasn't even going to be on the agenda but we did get the Volcker rule that said banks could not essentially trade for their own accounts now we're implementing that rule and the implementation paper is 298 pages long and there are probably six lobbyists in Washington per page and one can only imagine what comes out of this in this vague act that they're trying to put some meat in the bones on and I'm not optimistic that we'll achieve the objectives for Volcker wanted and he's pretty much the same way he's very discouraged I ran into him the other day only when they need a photo on and are we getting toward the end? could I have a cup just to say a couple things one it's always great to be with Bill he brings a great intellectual stature a great knowledge of history his books, I commend everyone up to you from the first book was The Four Pillars was it? which was the one you wrote those nice things about me uh-oh that's a good place to begin but just being associated with Bill is a highlight of my life honestly and I wish I had his writing talent historical grasp but the Lord bestows his blessings unevenly but I do want to say something we've been talking about data and I've shown you charts and we're talking economics we're talking markets things of that nature and I think that what I've done in that area has been correct and good and helpful and I do get letters almost every day but I want to just close by saying that if I've never been able to do anything it's keep being mine said to me the other day you're exactly the same kid I knew at Princeton I took that as the highest compliment I've ever had and part of that therefore which gives me some satisfaction I'll never be fully satisfied with my career I'll go back to the start with Bill's letter the letter I wrote to Bill and that is I've always liked to stay in touch with the actual investors who are here you guys who are paying my compensation and you guys are supporting my name and reputation and you guys are trusting Vanguard and trusting me too and you know we can shake hands we can look each other in the eye and that part of a big company is some number like 1.6 trillion or at 1.6 I don't know but I do want to close with two letters that will amuse you because part of that practice I've had just trying to treat people as individuals is not as part of great big groups are two other letters which I just thought about when Bill talked about the letter I wrote to him that there are really two amusing anecdotes and it's it's so funny that little things you do at the time just because of the right thing to do come back to be very helpful to you and one of them I got a letter from a Latino down in Florida and he wanted to know some fairly obscure investment question and I never heard of him before he wasn't anybody and I wrote him a two page answer to his question because it was the right thing to do and he turned out to be Humberto Cruz the financial editor of the Miami Fort Lauderdale I guess times so he's always said nice things about me and even better we had a kind of catastrophic experience with my former employer in the go-go era we started a really stupid fund and gave it a stupid name it was a very much an aggressive go-go fund and it blew up, it was called the originally called trustee's equity fund and of all the people it was not suitable for it was trustee's but in that event it was hot and came and went and was never heard again I got a letter from a he said I had ruined his father's life it was inexcusable, he was kind of a sewers and in many respects he was actually right it was a disgrace his father was retired down in Arizona and I wrote him a two page letter which he has never forgotten it turned out to be the cardiologist to recommend that I get a heart transplant the moment of the sanctus by name and so you don't need too many of those things keep you going so thank you all for being great human beings it's just been marvelous, I'm going to stay until around 10.30 which I'm going to do some for British TV they're coming down to see Building Nav and they're going to throw me in at the end I think and so I have to leave here at 10 o'clock but I look forward to being with your experts panel and even learn a little bit more thank you all for your support I really want to thank you for spending this time it's been a real treat to have you for a couple of days as a memento of this occasion I'd like to present you an replica of the Love statue that is in Love Park in Philadelphia right across from the Art Museum and we wanted to be a memento of this occasion but also to represent the love of your bow heads since it's a little too heavy to carry around we would like to also give you the lapel pin version of it which you can wear and you know that you have your bow heads with you in your fight well thank you so much and keep your goal always going and thank you for that I know everybody here thanks you too I do want to say that I'd like to give me a little memento and I'm not sure I really deserve it but they are all over my metal piece and this will go up next Liberty Bell you gave me I can't remember what it was last year two years ago Liberty Bell inscribed and then somebody gave me a bugle years ago and that's in a nice little frame and that's hanging above my metal piece so they mean a lot to me and they remind me of you and they keep me going day after day just another great occasion so thank you all again and thank you