Philadelphia Reflections

John Bogle, A Prophet In Our Valley

John C Bogle

Those who never met a living legend would have found in John C. Bogle a good place to begin, 80-plus years old, lively and very charming. The Vanguard Investment Company, which he founded, provides him a little think tank office, out of which have come several books and many articles (somebody else is running the company, now.) The drift of most of what he writes and most of his testimony to Congress, or at awards ceremonies, is that mutual funds charge too much. When the press decides to feature him, the spectacular theme is emphasized that in 1996 this current squash and tennis player was just about dead, and had a transplant of someone else's heart to keep him going. A populist graduate of Pre-Vietnam Princeton, and also the embodiment of a medical miracle, now, those things are newsworthy.

Future students of finance, however, will regard those things as minor footnotes. Bogle's real achievement was the invention of the index fund. Indexing had two purposes and probably stumbled onto a third. It combined diversification, low administrative costs, and outstanding investment performance in a single security. There will be foot-dragging in the boutiques and bucket shops, but this invention is well on its way to converting investment management from an inefficient luxury of the rich into an affordable efficient commodity for everybody. You will know that a fundamental has been established on the day when the U.S. Government starts buying index funds, or at least when it permits them to help finance Medicare or Social Security. Such invested funds of a government qualify for the term Sovereign-wealth funds; in fact, since major problems can be imagined if governments start to vote common shares, Heaven helps us if they don't stick to index funds. The investment community already knows that something basic has arrived, by their own standards. The original index fund will soon have a trillion dollars invested in it. Just do the math on what you would be paid if you realized a fifth of one percent, year after year, on managing a trillion. And then reflect on the impact on transactional costs generally, when many eminent firms still charge five times that much. To make barrels of money and still be a hero for making your product remarkably cheap -- now, there's a Philadelphia dream.

A technical explanation. Five hundred stocks as one lump are cheaper to buy and sell as a "program trade", and perform more smoothly, than any of them individually, because the ups balance out the downs. Transaction costs are less, because there is hardly any switching among the 500 stocks by the committee in charge, and therefore few taxes to pay. Fine, but what might not be easily anticipated is that the lumped investment performs better, unmanaged than the vast majority of funds managed by experts. Large funds, at least, are forced to buy the

stocks of large corporations. Large corporations are inherently subject to immense scrutiny and publicity, so there remains little advantage to being on the inside or acting quickly on general economic news. What everybody knows, in Wall Street parlance, isn't worth knowing. Index funds made up of small companies, or foreign companies, may possibly not work out as well as those limited to large domestic companies. For a while, it was thought index funds would out-perform when everything in the marketplace was going up, but underperform when most things were going down in a bear market. Not so, they seem to work better any way you look at them. They are the standard for performance, not just a measure of the averages. These things are here to stay.

Well, maybe. Reservations remain, although they don't have much to do with investment choices. It may take decades to happen, but it's hard to escape the uneasy feeling that some manager, someday, will figure out a way to divert a hundredth of a percent, or so, into his own pocket. A hundredth of a percent of a trillion dollars is quite a temptation. Perhaps an even more serious concern is that voting control of the corporations in the portfolio inevitably gets diluted by widespread index investing. Management supervision by stockholders is potentially lessened. Whether this will lead to management abuses, a temptation for minority stockholder intrusions, or to the government over-regulation, taking any of these directions would likely create a new power balance in the economy.

Meanwhile, John Bogle, who died on January 16, 2019, is on his way to financier sainthood. He's certainly in a class with Anthony Drexel and Nicholas Biddle, already. And other icons are under review.

Larger Clubs

The Racquet Club

Philadelphia has dozens -- perhaps hundreds -- of clubs, societies, associations and organizations. Many owe their formation to the Sunday Blue Laws, which once made it illegal to obtain liquor on Sunday except on the premises of a private club. Some clubs were formed around the tradition that the stock exchanges (hence, the banks and brokerage houses) were open for business on Saturday mornings, leaving the financial community available for a long lunch, a drink afterward and a free afternoon in town. But primarily, Philadelphia already had a long tradition of fraternal and volunteer associations. Benjamin Franklin helped found a great many juntos, associations and volunteer groups for some civic purpose. Although he was not a Quaker, Franklin was in the Quaker tradition of forming voluntary committees and groups to get some particular job accomplished. In Quaker circles, aimless griping and complaining are not tolerated; if you have a "concern", you propose a solution which a committee can put into action, and you will probably be expected to be its chairman. The Quakers even had to devise a formula for "laying down" a committee when its purpose was completed, since, after a while, the original purpose of the club may disappear, but habit and good fellowship cause it to continue as a social club. A good example is a certain club which was originally founded for life-saving on the river, but now continues as an ice-skating club on the Main Line.

Anyway, clubs continue to be a center of Philadelphia life at the present time, often with founding traditions that are a little unclear to many of the members. It isn't as true as it was when the Sunday Blue laws were effective, or before the restaurant revolution overtook us, but to live in Philadelphia without being active in several clubs is to feel that nothing ever happens in this town, while your neighbors at the same time are so busy going to their clubs they never think to invite you. Or perhaps fear that since everyone goes to so many, you might feel pestered if they invited you to join.

Union League of Philadelphia

There does exist a different sort of club entirely, however. The big-city in-town social club was started as a place to stay when transportation to the suburbs was tiresome, and large clusters of people had townhouses near the business district. A place to stay when your wife is visiting her relatives. A place for the local bachelors to congregate. A place where the CEOs can congregate fraternally, avoiding the isolation at work that comes from being the boss. A place where lawyers can have a long lunch while they wait for the phone to ring with the big case they can retire on. A place to loaf, play pool, get a haircut, get your shoes shined, play a game of squash. Or get a drink and a decent meal in comfortable surroundings. Jeff McFadden, the director of the Union League, describes these clubs as "day camps for adults".

Such clubs have had a hard time in recent decades. The ten-story Manufacturers and Bankers Club is now an office building, the prestigious Rittenhouse Club is shuttered, along with the Commerce Club, the Locust Club, and a dozen others. The most prestigious of all, the Philadelphia Club is in a decrepit neighborhood next to Broad Street, which it hopes will soon revive and make wrenching decisions unnecessary for the club. The interior is as close to an English city club as you could find, with immensely valuable paintings and furniture, creaking stairs and quaint bathrooms. You're not likely to find more than five members at lunch these days, but the food is excellent, the service superb, and the posted waiting list for membership quite comfortably long. The posted names tend to be a list of the cream of society, but most of them live thirty miles away. It's no longer possible to stay there overnight.

The Acorn Club

The Acorn Club is for women, quite frequently women whose husbands are members of the Philadelphia Club. If ever there were some political move to force the two clubs to abandon the men-only and women-only rules, a merger of the two would allow them to continue exactly as before as a single club with two facilities. The Acorn Club is just up Locust Street from the Academy of Music, and that is surely no accident. The place is immaculate, elegant, quiet, extremely well managed.

Around the corner on 16th Street is the architect Horace Trumbauer's turn-of-the-last-century Racquet Club. In some other city, it might be called the Athletic Club, which makes it more attractive to younger members than the other clubs, where billboards would be the extent of the exercise. Indoor swimming pools and gymnasia are extremely heavy and thus require expensive steel supports. This club not only has a pool, but it also has squash courts (both old-rule and new-rule), racquets courts (the thirty-foot walls are polished slate), and one of the five court tennis courts still in existence in the country. Court tennis is a strange game, of which it is said that "if you know the rules and own your own racquet, you are one of the top ten in the country". But the game originated in the Twelfth Century and was what people meant by "tennis" until 1878, when a game is known as "lawn tennis" was invented and took the world by storm. One of the other five court tennis courts is a few miles from the location of the hydrogen bomb factory on the Savannah River, eighty miles from Charleston. The DuPont Company put it there, and the location is no accident. > is having a hard time filling its space with members, but it would be so appallingly expensive to replace even a part of it, that superhuman efforts are justified to preserve it.

The Union League at Broad and Samson Streets, is the one outstanding exception to the decline of the center city men's club. When I joined it long ago, the strictest of rules prohibited women from any area except the women's dining room in the basement. I still remember the chairman of the admission committee, seated at the end of a long long table of gentlemen in the semi-darkness, intoning to me. "I'm going to ask you a question. And because I don't want any misunderstanding, I'm going to ask you twice. The question is, have you ever, even once, in any national, state or local election -- even once -- ever voted anything except straight Republican? Let me repeat, have you ever, even once. . . ?"

Well, the League lets in Democrats these days, and even quite a few women. But what has transformed the League from a declining relic into a thriving center of the Philadelphia social scene has been management. The League owns its own new parking garage across Samson Street from the side door, which is itself an innovation with a canopy. The dingy old members overnight rooms have been transformed into a four-star hotel, with concierge. The old steam rooms are now a modern exercise facility, and a dozen computers in the "business center" are always occupied. The menu has been upgraded, the service snappy instead of sleepy. The upstairs dining rooms usually have several hundred people for dinner when formerly they were deserted. Several times a year the League has an upscale dinner party for five hundred or so guests, that would be in a class with a reception for the King of England. Nobody any longer asks why they should be a member; they only ask whether they can afford it. Apparently, lots of people can, once they have a reason to.

Cosmopolitan Club of Philadelphia

Over in a nearby short narrow street (we hesitate to call it an alley) near the Racquet Club, is the Cosmopolitan Club, for women only, thank you. It's small, probably would have trouble accommodating more than a hundred at a time, but the food and service are great. The real reason for the existence of this club is the wish of professional and working women to have a place to gather and support each other's morale, listen to uplifting speeches, help along with the younger ones and that sort of thing. In some ways, the Cosmopolitan Club is the most typical of all Philadelphia clubs.

Victorian Broad Street

Broad Street

Starting at the Delaware River and walking East-West on Spruce Street, it is possible to envision an architectural museum which begins in 1702 and ends at the Schuylkill River about two hundred years later. As Spruce Street crosses Broad (14th Street), it reaches the level of Victorian architecture, and for this discussion, we now face North on Broad Street and visit the string of solid masonry fortresses which exemplify Philadelphia at the height of the Industrial Revolution. At Broad and Locust Streets stands the old lady, the Philadelphia Academy of Music. Now reverted to its original purpose of presenting grand opera, the 1857 acoustical mansion long housed the Philadelphia Orchestra. Electricity has replaced gaslight, and there are a few elevators to the upper balconies. But the Academy is a surviving example of a class of music halls which once dominated every large city in the Western world. Opera hasn't changed; why should the Academy?

Academy of Music

A book called Philadelphia Scrapple, written by several anonymous Philadelphians, gives a succinct description of the conception and design of the Academy building:

"Joseph R.Ingersoll became chairman of a committee to secure subscriptions for a building fund. When what was thought to be an adequate fund had been raised, the committee for the building went to consult Napoleon Le Brun and his partner about plans.

" Mr. Le Brun asked the committee how much money they had to work with. In Mr. Le Brun's own words:

"' Upon their telling us, we said you cannot build a beautiful opera house inside and outside both for that amount, but you can build the interior thoroughly complete and build the outside perfectly plain and simple like a market house, and if you ever have the money later on you could easily face it with marble and make the exterior beautiful, too.

' When the question was asked us, "If we do that how are we to know that the acoustics will be thoroughly good in every respect?", I replied that there was but one large theatre in the world at that time that was perfect acoustically, and that was La Scala at Milan, and that to be quite sure of the new Academy before we began to build, the Scala interior, stage, and auditorium should be duplicated.'

"To aid in securing acoustic perfection, over and above the meticulously studied proportions and dimensions, there is an intricately-devised system of inverted barrel-vaulting underneath the orchestra and, underneath the centre of the parquet, a counter-vaulted sounding well, walled in with bricks, 12 feet deep and 20 feet in diameter."

Bellevue

Just a little further North of the Academy is the Bellevue, which was long called the Bellevue Stratford, but which now has a Hyatt Hotel on the top floors, and a food court in the basement. Because of the tax laws, for a century it has been shrewd to sell a hotel every seven years, often just trading it with a similar hotel which is also at the seven-year point. In the case of the Bellevue, this grand hotel in the European style changed its name for more than one reason, mainly because in 1976 it was the scene of the discovery of a new disease, Legionnaire's Disease. As it turned out, this bacterium was especially favored by growing in water-cooled air conditioning equipment and made its epidemic debut when the American Legion held its convention at the hotel for the bicentennial of the Declaration of Independence. The epidemic almost destroyed the attendance at the bicentennial, bankrupted the hotel, and represents a historical moment that everyone hopes to forget. The hotel is just too stately, comfortable and charming to disappear, and eventually, the Legionnaire story will just be a curiosity. John B. Kelly, the father of Grace, once the Mayor of the town, and a Democratic power baron, used to hold court at lunch every day in the main dining room. The Republicans, of course, held a daily luncheon war dance at the Union League a couple of doors away, and you had to be careful where you ate lunch if you had political involvements. Although the ballroom of the Bellevue was the only place for a debutante function or a really fancy banquet, there were many hostesses who were uneasy about going to the place which was the center of Democrat politics and felt they had to ask around before they announced a decision.

Union League

And a few steps North of that, at Broad and Samson Streets, stands the Union League itself. Not the Union League Club, please, that's a name used in other cities; this is the home of the franchise, the Union League itself. Although it's a house, it is a very big brownstone house, attached to another building in the rear which must be ten times as large. When you are inside, you pass from the 1860 building to the 1902 building without noticing the change but viewed from the outside, it is easy to overlook the connection. Brownstone is soft and easily attacked by the weather, so the League requires a lot of maintenance. And gets it; the place is spick and span. If you appear there without a jacket or tie as someone's guest, they won't eject you, but they will wordlessly bring you a jacket and tie to wear, and most people don't have the brazenness to do it twice. Inside, the furnishings are comfortable but reflective of the Civil War origins of the club, with marble floors and walnut walls, stained glass windows and awesome rooms dedicated to Lincoln and other Republican Presidents, plus Civil War Admirals and Generals. One of the dozen dining rooms is outfitted like a Victorian saloon, with portraits of semi-nude buxom ladies on the wall that once graced the walls of Edward Stotesburyand others with needlepoint furniture on oriental rugs for the ladies to have afternoon tea. You can hold a wedding banquet in one room, and a cigar-smoking bachelor brawl in another, without one group likely to see the other.

Philadelphia City Hall

At the head of Broad Street, dominating the view from the middle of the street, is City Hall. When it was designed in 1858, it was to have been the tallest building in the world, but politics intervened, and when it was completed in 1888, the Eiffel Tower and the Washington Monuments were taller. It is almost impossible to guess how opulent and ornate City Hall once was, but a guided tour is provided, and with coaching, you can see the huge staircases, the arching ceilings, the palatial offices for the Mayor, City Council and the Supreme Court. You can take a 44-story elevator ride, but you can no longer go up to Willam Penn's hat. The views of the city are spectacular, showing off the rivers, the parkways, the clusters of skyscrapers, and the vistas of Broad Street, stretching North and South to form what is said to be the longest straight road in the country. A tour of City Hall, which most residents never bother to take, teaches an impressive lesson in the way the city residents once loved their town, contrasted with the shabby neglect and decay which now overtakes city politics. For years it was said that City Hall should be torn down and replaced with something functional. But anyone who tours the place today comes away appalled at such an idea. The demolition cost alone makes the project indefensible. No one can now guess whether the future holds a revival of reverence for this massive monument, or whether, like the statue of Ozymandias, it is destined to lose all significance except to point a moral or adorn a tale.

Wanamaker's

To go further north on Broad Street, you must go either East or West around City Hall. To the East is a department store striving to keep up the standards set at that location by John Wanamaker, who made famous the saying that the customer is always right. Or, going West around City Hall, you might tip your hat to the place where the old Pennsylvania Railroad had its Broad Street Station. It's hard to believe, but the trains from Washington and New York really did puff and jingle right up to fifty yards from the Mayor's office. They came into Center City on an elevated track, creating a barrier long known as the Chinese Wall. After the tracks were removed, the urban land became the railroad's most valuable property, and may eventually become the center of a city moving slowly westward.

On Broad Street North of City Hall are two more notable Victorian buildings, and then we'll stop. On the East corner, at what is known as number one North Broad Street, is the Masonic Temple, looking like a Norman church or fortress, which is much the same thing. The Masons were here first. Their temple was moved here in 1873, some fifteen years before City Hall was completed. It is likely, however, that the plans were made after 1851 when City Hall was originally conceived, and the Masons were just more skillful in getting a building built, as you naturally might expect of them. And what a building. There are seven meeting rooms inside which would rival in size the auditorium of most good-sized churches. Cantilevered staircases astound the viewer, and there are acres of marble flooring and paneled walls, hung with portraits of former masons, like George Washington and Benjamin Franklin. Different components of the organization, like Knights Templar, can meet simultaneously, and the size of the rooms gives some idea of the size of the organization. In fact, it is only part of the Pennsylvania Chapter, since the Shriners are somewhere else. The Masons have always been bewildered by a Pope who once ordered his faithful to abstain from Freemasonry, a dispute possibly having to do with the Twelfth Century disputes of the Popes at Avignon and the confiscation of the Knights Templar, but it's hard for an outsider to judge. The Masons will invite you to join, but they won't tell you what they do until you join. If you don't know what an organization is all about until you join, it's an impediment to membership recruitment. Or perhaps it's the other way around. Perhaps it is a testimony to the large number and esteemed public reputation of its members that so many can be induced to join, purely out of respect for the people they know who are already members. In any event, Masons certainly can build impressive buildings. If you are one of the many people who have lived in Philadelphia for six decades without visiting the place, make a note to go there soon.

Masonic Temple

And then the final stop on the tour, the Pennsylvania Academy of Fine Arts. For the moment, never mind the towering reputation and history of this cradle of American Art, of Eakins and Rush and Peale. Just look at the looming red building designed by Frank Furness on Cherry Street, all massive and funny-looking and Egyptian or something. First of all, it would be wise to learn how to pronounce his name, which is more like Furnace than fur-Ness, since there are lots of descendants around who are in a position to snub you if you stumble. It's maybe a little hard to understand why a building has to be so massive to hold pictures at an exhibition, but perhaps the thought simply was to make it cheaper to leave it standing than to tear it down. The City moved away from the Academy of Fine Arts, and now it is moving back again, but the permanent collection never changes. Some say that the modern exhibitions never change, either, but that's just post-modern slander. In time, the Academy will overcome.