Who Lost the Most in the Financial Crisis? Ordinary Americans.

Bloomberg Opinion marks the 10th anniversary of Lehman’s bankruptcy with a collection of columns from around the world. Read more.

A decade after the collapse of Lehman Brothers Holdings Inc., there are still arguments about who was responsible for the 2008 financial crisis. But it’s also worth revisiting who paid for the crisis and who profited from it.

Any discussion about winners and losers, of course, must start with the bank bailouts. The centerpiece of that rescue was the Troubled Asset Relief Program, or TARP, an October 2008 federal law that authorized the U.S. government to “invest” in banks and their toxic mortgage-related assets. The U.S. Treasury invested $426 billion and ultimately recovered $441 billion when TARP ended in December 2014.

While it’s true that TARP turned a profit, the reward was laughably inadequate for the risk. The program bought assets that were deeply distressed — assets that ought to pay above-market returns when prices recover. Instead, TARP generated a return of less than 1 percent a year from October 2008 to 2014, while the S&P 500 Financials Index returned 5.3 percent and the S&P 500 Index returned 12 percent, including dividends. The difference amounts to hundreds of billions of dollars.

The Federal Reserve threw banks a lifeline, too, by holding interest rates near zero for years. The average effective federal funds rate dropped to 0.16 percent in December 2008 and remained below 0.25 percent through the end of 2015. That allowed banks to borrow money cheaply. It also sapped savers of badly needed income.

Those moves were undoubtedly necessary to keep the financial system and the larger economy from collapsing. But banks bore too little of the burden, and it’s difficult to view the bailouts as anything other than a massive wealth transfer from ordinary Americans to financial firms.

But there was another — arguably bigger — wealth transfer during the financial crisis between ordinary investors and more sophisticated ones. As the stock market tumbled from November 2007 to February 2009, retail investors pulled a net $152 billion from U.S. stock mutual funds, according to data compiled by Morningstar, including adviser and retirement share classes. More than half of those redemptions, or $78 billion, were during the market’s lowest points from September 2008 to February 2009.

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It’s Not Time to Hit the Ejector Seat on Emerging Markets

This is no time to panic about emerging markets.

Imagine you hadn’t read the headlines about emerging markets this week. You didn’t know that South Africa slipped into a recession, or that the currencies of Turkey, Argentina and Indonesia are near record lows, or that seemingly every emerging-market analyst predicts that the trouble will spread to other developing countries.

Instead, all you would have are the numbers showing how emerging-market stocks have behaved in the past. You would see that the MSCI Emerging Markets Index returned 8 percent annually in dollars since 1988 through August, excluding dividends, and that the volatility, as measured by annualized standard deviation, was 23 percent during the period.

You would quickly deduce that emerging-market stocks are a wild ride. The EM index can be expected to decline more than 40 percent of the time and enter bear market territory — a decline of 20 percent or more — close to a third of the time. You would then notice that the EM index has fallen by 19.7 percent in dollars from its peak on Jan. 26 through Wednesday and most likely conclude that nothing unusual was happening.

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Merrill Can’t Restore the Bad Old Days of Conflicts

The fiduciary rule is dead, but its spirit lives on.

The rule, which the Department of Labor first proposed in 2015, required brokers to act as fiduciaries — to put their clients’ interests ahead of their own — when handling retirement accounts. It sounded simple, but it meant that brokers would have to rethink the way they do business.

Mutual fund companies routinely pay brokers to sell their funds to clients. That payment is often an annual fee for as long as the client is invested in the fund — a particularly pernicious conflict of interest that gives brokers incentive to keep clients in high-priced and often poorly performing funds. As fiduciaries, brokers would most likely have to abandon the practice or at the very least disclose it to their clients.

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Dance of Investing Styles Doesn’t Signal a Downturn

The U.S. stock market notched yet another record on Wednesday, and many investors are anxiously looking for signs of a slowdown.

Perhaps not coincidentally, researchers at Sanford C. Bernstein & Co. say they’ve spotted one. According to Bloomberg News, Bernstein has found that correlations among investment styles — or factors — such as value and momentum “have shot to all-time highs.”

That means they are moving in the same direction, and that is apparently a bad omen. As Joseph Mezrich, managing director at Nomura Securities International Inc., told Bloomberg, “In the past factor correlation has tended to rise in periods of macro stress.”

The concern is likely to interest more than just wary investors. Factor investing is increasingly popular. Investors have poured $352 billion into value, momentum, quality and other factor exchange-traded funds since 2013, according to Bloomberg Intelligence, nearly double the $191 billion in factor ETFs at the end of 2012.

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What Does the Longest Bull Market Mean? A Debate

There’s lots of disagreement about whether the current bull market in stocks is now the longest in history. Bloomberg Opinion columnists Nir Kaissar and Barry Ritholtz recently met online to debate its longevity, whether it matters and if anyone should care. They previously discussed passive versus active investing and global equity valuations

Nir Kaissar: The U.S. bull market became the longest on record yesterday. It’s been 3,453 days since the market hit bottom in March 2009, surpassing the run that began in October 1990 and ended when the dot-com bubble burst in March 2000.

Or did it? According to Yardeni Research Inc., the bull market that ended with the dot-com bust began in December 1987 — not October 1990 — and lasted 4,494 days. By that count, the current bull market won’t steal the record for another three years. And that assumes this bull run began in March 2009, a claim that Barry will undoubtedly contest.

It’s tempting to wave this away as frivolous banter among market historians. But that’s a mistake because this debate is about the future, not the past. By asking whether this bull market is the longest in history, investors are really asking whether it’s near an end.

It’s an unavoidable question. Underlying most portfolios are so-called capital market assumptions — estimates of how various investments will perform in the future. Those assumptions have a big impact on how the portfolio is constructed.

Which inevitably raises more questions: Does the length of a bull market say anything useful about the future? And are there more reliable ways to forecast what’s ahead?

Barry Ritholtz: I am fascinated by this topic! Over the years I have spent a lot of time thinking and writing about it (see this).

I have found the conventional wisdom on determining the age of bull markets to be mostly wrong. No, bull markets do not begin from bear market lows. If this bull began in March 2009, then did the postwar rally from 1946 to 1966 actually begin in 1932? Did the 1982-2000 bull market start at the bear-market lows in 1974? Of course not — but that’s where the claim this bull market began in March 2009 leads to.

When did this bull market actually start? There are many ways to measure a bull market, but the most reasonable way is from when it makes new all-time highs. In this case, that means the start of this bull market was March 2013. The recovery from the financial-crisis lows, retracing the plunge from October 2007 to March 2009 is not, in my opinion, part of the bull market.

So no, bull markets don’t start at bear-market lows.

There are other ways we can debate the issue of whether or not this is the longest bull market ever, but perhaps we should discuss an even more important question: Does it really matter?

Bull markets do not simply die of old age; they don’t reach a certain length, and then keel over. What kills them are things that hurt corporate revenue and profits: high credit costs that makes borrowing costly, or inflation that makes input costs like natural resources, energy and labor more expensive. Or just a good old-fashioned recession — and even those don’t always kill the bull.

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Mid-Cap Stocks Aren’t Ready for a Starring Role

I can’t open a web browser lately without seeing a banner promoting State Street Corp.’s new digital series “Crazy Enough to Work” starring actress Elizabeth Banks — who, I must confess, I think is fabulous.

The series profiles four midsize companies. The first two episodes showcase EPR Properties and the New York Times Co. and have already been released. The final two feature Dunkin’ Brands Group Inc. and the Boston Beer Co. and will be available on Aug. 29 and Sept. 12, respectively.

It’s all a plug for State Street’s SPDR S&P MidCap 400 ETF, which makes me wonder about those algorithms supposedly customizing my online experience. I’ve never expressed any interest in buying a mid-cap stock fund.

It’s not that I have anything against mid-caps. On the contrary, I own them like nearly everyone else. I’m defining mid-caps as stocks with a market value of $1 billion to $10 billion. If you own a large-cap stock fund, chances are you own some mid-caps, too.

Consider that there are 458 mid-cap stocks in the Russell 1000 Index, which collectively make up 8.9 percent of the index. Mid-caps make up an even bigger chunk of the broader market. There are 1,429 mid-caps in the Russell 3000 Index, accounting for 14.6 percent of the index.

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These ETFs Save Investors a Trip to the Casino

Exchange-traded funds are looking for a few good gamblers.

ETFs are famous for tracking simple, broadly diversified indexes cheaply, transparently and tax-efficiently, an ideal combination for long-term investors. The problem for aspiring issuers is that the market for those ETFs is dominated by the big three — BlackRock Inc., Vanguard Group and State Street Corp. — which collectively manage 82 percent of ETF assets, according to Bloomberg Intelligence. To stand out, smaller firms are turning to more complex and niche funds.

Enter Innovator Capital Management, which is expected to introduce its S&P 500 Buffer ETF on Wednesday, the third in a trilogy. The S&P 500 Power Buffer ETF and the S&P 500 Ultra Buffer ETF launched last week. The funds shield “investors” from a one-year decline of up to 9 percent, 15 percent and 30 percent, respectively, in the S&P 500 Price Return Index in exchange for a cap on the index’s return.

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Elon Musk Isn’t Wrong About the Public Markets

If Elon Musk takes his electric car company and goes home, investors will be poorer for it.

Tesla Inc.’s colorful co-founder and CEO tweeted on Tuesday that he’s considering taking it private after complaining for years about life atop a public company. As Bloomberg News recalled on Tuesday, Musk expressed “his frustrations with having taken Tesla public” in an interview in January 2015 and has carped about the market several times since then.

Hours after the tweet, Musk laid out his beef with public markets in an email to Tesla employees. The gist is that 1) the volatility of Tesla’s stock is a distraction; 2) the scrutiny around quarterly earnings creates pressure to focus on short-term results at the expense of longer-term ones; and 3) short-sellers, or those who bet against the company, have an incentive to attack it.

My colleague Matt Levine rightly points out that Musk, “who is constantly tweeting attacks on journalists and jokes about bankruptcy, who is also busy running two other companies,” isn’t the best-suited critic of the market’s shortcomings. But don’t confuse the message with the messenger. Regardless of your opinion of Musk or the wisdom of taking Tesla private, with the number of companies listed on U.S. stock exchanges down to roughly 3,600 at the end of 2017 from more than 7,600 in 1997, it’s a good time to ask whether public markets are working the way they should.

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FAANGs Are More Solo Acts Than a Tech Supergroup

It’s time for FAANG stocks to break up, at least in investors’ minds.

Facebook, Apple, Amazon, Netflix and Google parent Alphabet can’t get away from one another. Every time one grabs the spotlight —  as Apple did last week when it became the first  U.S. company with a $1 trillion market value — it brings along the other four.

They’re alternately hailed as the hot stocks, technology’s brightest lights and indispensable growth companies, and jeered as a worrisome sign of a frothy and top-heavy market. But look closely and it’s no longer clear why they should be lumped together at all.

Let’s start with the technology moniker. Amazon is a retailer and Netflix is an entertainment company, which is why, contrary to popular perception, the Global Industry Classification Standard, or GICS, tags them as consumer discretionary companies, not tech. And as of the next GICS reclassification in September, Facebook will move from the tech sector to telecommunications, where it belongs. Only two of the five FAANGs, in other words, are true technology companies.

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Fidelity’s No-Fee Funds Unleash the Power of Free

Fidelity Investments fired a shot heard around the investing world on Wednesday: It announced it would roll out two index mutual funds on Friday that charge no fees.

Both funds will track market cap-weighted Fidelity indexes. The Fidelity ZERO Total Market Index Fund will invest in the largest 3,000 U.S. companies based on float-adjusted market cap, and the Fidelity ZERO International Index Fund will hold the top 90 percent of stocks within various developed international and emerging countries.

It’s tempting to dismiss the move as a marketing stunt. Fidelity doesn’t need the money. I counted more than 1,000 Fidelity mutual funds, including the various share classes, with close to $1.9 trillion in assets and an asset-weighted average expense ratio of 0.46 percent a year. That translates into roughly $9 billion of annual revenue.

And that’s just the beginning, because Fidelity does more than manage mutual funds. As Russel Kinnel, director of manager research at Morningstar, told Bloomberg News, “Fidelity has lots of ways to make money from customers once they are in the door.”

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