Treasury

Despite the widely held view that indexing is the safest way to invest, indexing helped recklessly drive our financial system and economy into the ditch last fall.

• While there’s consensus the financial crisis warrants “new rules of the road” and better policing to protect against systemic risk, all the rules and oversight in the world can’t keep us out of the ditch in the future if index vehicles continue to drive the wrong way against oncoming traffic.
• And “stress testing” whether bank vehicles can survive head-on crashes, completely misses the point that indexers should not be driving the wrong way on the freeway.

A major reason the system has become so unstable and dangerous to financial security is that over ten percent of money management vehicles on the road today are indexers, which by design drive the wrong way against the oncoming traffic of a market economy that allocates capital based on economic merit.