FM: Let’s discuss some trouble areas on segregated funds, i.e. Sentinel, MF Global, PFG?
BB: Well if you’re talking MF Global and Peregrine, which are the most concerning developments on the futures side since I left it. If I were in the futures market today I would be spending a whole lot of time trying to figure out how to overcome the structural weaknesses of the system. [The securities side] has SIPC [Securities Investor Protection Corp.]…It’s not perfect but it’s there and it works. I think people will be very cautious in terms of opening futures accounts with a limited number of firms without knowing that their cash is protected in seg funds.
FM: What do you think the futures and options industries can learn from each other?
BB: [The options] industry, from day one, because of the SEC structure was part of the securities industry, and if you have a securities account you automatically have the protection of SIPC. What’s important is everyone in our business pays something into SIPC and it is a very strong anchor for customer confidence.
FM: People with Bernie Madoff lost their money, right?
BB: Actually the biggest hits taken because Madoff depended on how the account was carried. If you had an account with a broker/dealer, SIPC covered it. There were different structures that Madoff used through feeder funds — but if you had an account with a broker/dealer, like if you had an account with an FCM, the broker dealer has the coverage of SIPC. I don’t know what the numbers were but it was an extraordinary amount of money SIPC paid out.
FM: How do you see the markets changing?
BB: I have a different perspective…two ways of looking at it. One is not withstanding some of the problems that have existed, like the Flash Crash, or Facebook’s IPO, or outages that have existed, we have gone to a whole new era of reliance on highly sophisticated computer systems. Whether it’s an airline or other businesses that depend on computers, we have accounts with banks and there are problems. We’re just going to have to get better and better at running these systems.
But the positives so outweigh the negatives from the point of view of individual investors. I’m very interested from a professional point of view of what I call financial literacy. I’ve given lectures on that. That’s one of the things I want to do when I have more time. One of the great failures of our country educationally is in not teaching people the financial literacy they need, particularly in a world where they are dependent on their own investments in terms of 401ks and IRAs, not what they call your father or mother’s pension plan. On one hand I think it’s terrific, we have in my view in this country the best financial products, the most transparency, the best liquidity of any country in the world. You give me $500,000 or $10 million, and I can invest as well as any institutional investor with the same financial power almost. It used to be if you had a small amount of money you would get raked over the coals, but if you had a lot of money you had great bargaining power. That’s not true particularly on the securities markets today.
We’ve done a poor job in teaching people how to manage their investments, and I think it’s a great failure at every level of education....Start in high school, [continue] in college, and in graduate schools. I know I’ve given classes at University of Chicago and Northwestern...the best and the brightest, graduate students! And it’s shocking…shocking. So I look at it and say with all the good we have, how do we get people to that level where they don’t say, ‘I have a guy who does it for me.” Or “I don’t really understand it.” My favorite line to people is you should spend as much time on your financial future as you do on planning your vacations.
FM: So what’s your next move?
BB: First of all, I’m going to be chairman here for a year. I will be engaged. Can’t tell you exactly how much time it will be, but it certainly will not be [just] a day a week. My goal is to be the best example of a public company’s transition, which we hope to be able to demonstrate.... After that... I’ve been chairman of Northwestern Hospital for the last 14 months, so I’ll do that for a while. I’ll be doing some other civic activities that I can’t go into now. I hope to do some teaching, and ultimately I hope to do some things in other areas of the investment world, some of which I hope to do with some of my sons who are all in business. That’s part of the menu.