WITHOUT trust, there can be no free-market capitalism. Capitalism took root in Europe when wealthy families had excess income to invest, and they entrusted their money to managers who would treat their funds with due care.Where Bogle's concern is with the overcharging and underserving of individual investors, Stein criticizes investment banks for selling mortgage derivatives they didn't even understand themselves. Or if they did understand, as in at least one case, they shorted the same stuff they were selling.
Such standards of care required that those handling someone else’s money behave with extreme rigor and honesty. The standards, which came to be known as fiduciary duty, were the same duty a court required of, say, a trustee dealing with the property of a widow or a child.
"Today," writes Stein, "in the midst of the mortgage mess, we see people breaching their fiduciary duty and getting away with it."
Is the world of finance really sinking as low as Bogle and Stein fear?
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