In a column on the late founder of the Vanguard money management firm, Jack Bogle, Yale Economics Professor Robert Shiller observed:

In the long run, markets reward principled people.

Based on my personal experience with transparency, the long run is a very long time.

Professor Shiller talked about the principle Mr. Bogle was famous for pushing and how it undermined the functioning of the capital markets.

Advising people simply to hold the market is advising them to free-ride on the wisdom of others who do not follow such a strategy. If everyone followed Bogle’s advice, market prices would turn into nonsense and would provide no direction to economic activity.

So Professor Shiller went on to describe what markets do and why active asset management is needed.

But there is still need for an expanded set of risk markets, because these markets can – and do – carry out useful functions, including risk management, incentivisation and orienting business.

The problem is that attention to these markets requires intelligent and hard-working people to help others in their investing. Theirs is not a zero-sum game, for they help direct resources to better uses. And these people must be paid.

Except he leaves one very important ingredient out:  transparency.

Without disclosure, markets don’t function.

For example, when it became apparent the subprime mortgage-backed securities were opaque, the market froze.  It still hasn’t thawed a decade later despite the presence of many intelligent, hard-working people who could direct resources to it if only they could know what they were buying and assess its risk.

Professor Shiller concludes by saying:

Bogle is still a hero of mine, because he provided an honest product and was motivated by a sincere desire to help people. And he should be a hero to all, because he showed that markets eventually recognise integrity.

Hopefully, similar kind words will be said about the Transparency Label Initiative. After all, transparency is to Wall Street as water is to the Wicked Witch of the West in the Wizard of Oz.  They end the threat.