Vanguard’s Founder Warns on ETF Risk
Jack Bogle, the founder of Vanguard and father of ETFs, spoke yesterday about the possible dangers of exchange-traded funds. Talking about the hypothetical situation of the market being totally dominated be ETFs, Bogle said "If everybody indexed, the only word you could use is chaos, catastrophe …There would be no trading, there would be no way to convert a stream of income into a pile of capital or a pile of capital into a stream of income. The markets would fail". However, he said the chances of a totally-indexed markets are "zero".
FINSUM : Yes, total indexing will probably never occur, but the threat of decreased active liquidity because of ETFs is nonetheless very real.