Charles Schwab CEO on the future of the 401(k)

December 16, 2011, 10:42 PM UTC

Charles Schwab CEO Walt Bettinger took the reins from his company’s namesake in 2008. Since then, the economy has been volatile, power has shifted parties in Washington and Occupy Wall Street camps have sprung up across the country. In an interview on December 8, he weighed in on all things concerning the American investor in this landscape—including 401(k)s, Social Security, and just who should and shouldn’t invest in stocks. He discussed what it’s like sitting across the hall from Schwab himself, and what he has in common with the “99%.” An unedited transcript follows.

ADAM LASHINSKY: So, I think what would be helpful would be to start at a very high level. I know two things about Charles Schwab: it’s a very big brokerage that aims at the middle of the market, and you also are a bank. So, first of all, tell me if my understanding is correct, and perhaps what I’m missing in that simplistic view.

WALT BETTINGER: Sure. Well, it’s accurate to an extent. About two-thirds of the company is made up of the traditional retail part of Charles Schwab (SCHW) that most people think of, the “Talk to Chuck” ads, and a bank is part of that. The other third of the company though is, we’re the leader in providing back-office, custodial and trading services to independent investment advisers, typically see-only professionals who manage money for clients in return for an annual fee. And we also have a fairly significant 401(k) business, where we serve about a million and a half participants, in all size companies, all around the country.

ADAM LASHINSKY: And you characterize that as a business product as opposed to a consumer product because you’re serving business customers with that?

WALT BETTINGER: We really do. Those last two are B2B businesses. Although, it’s interesting, if you look all the way through in both cases we’re still serving an end investor.

ADAM LASHINSKY: And how does the margin structure compare with doing back-office work, supplying services to other financial services players as opposed to providing it yourself?

WALT BETTINGER: Well, the margin percents are actually very similar. But the margin dollars are different, because when you providing a back-office service you’re getting less revenue per dollar of client assets than when you’re in the primary role in serving that relationship.

ADAM LASHINSKY: So, a smaller opportunity, but a big business?

WALT BETTINGER: On the RIA side it’s a significant amount of asset, $600 billion, $700 billion that we provide services for, a very similar amount of assets to what we have in total on the retail side.

ADAM LASHINSKY: Now, can you explain to me what Schwab’s strategy is, especially compared with competition which you have in front of you, behind you, above you, to the left and the right, and so on?

WALT BETTINGER: We do have a lot of great competition! Our strategy is actually a really simple strategy, we can frame it in three words. We call it “Through Clients’ Eyes.” The financial services industry is an industry that has probably deservedly picked up a reputation that is not very positive, and we try to position our strategy in contrast to that. So, whenever we’re talking about a product design or a service model change, or pricing, we always say, “How is this going to look through the eyes of the client? How is this going to appear through clients’ eyes?” I think that maybe unique and a little bit differentiated position has really contributed to a lot of the outsized growth over the years.

ADAM LASHINSKY: And so, I suppose a way of asking the question of what you do, is to ask what don’t you do. What has viewing things through the clients’ eyes led you to a revenue opportunity to not pursue?

WALT BETTINGER: Well, there are a lot of revenue opportunities that we step away from. There are ways to make money, we’re just not confident that they’re always in the best interests of the client. And by that, we don’t want to have it come across as we’re judging those particular solutions, but we don’t necessarily feel they’re right for us.

ADAM LASHINSKY: For example?

WALT BETTINGER: We haven’t gone into the hedge fund area; we’ve chosen to stay away from certain aspects of offering a service to a client in return for maybe a fee where we get paid no matter what happens in the outcome for the client; we don’t trade on our own book. So we’re not involved in proprietary trading, or maybe where it could get you in a position where you’re trading against your client. We never want to be in a position where we’re on one side of the table and the client is on the other. We’d like to be in a position where if the client wins, we win; if the client doesn’t win, we should have to get in that game also. That’s through clients’ eyes.

ADAM LASHINSKY: And of course you do have an asset management business, so you collect asset fees even if a client’s portfolio is declining. But your point is a smaller fee because their portfolio is declining?

WALT BETTINGER: The majority of our asset management business is very simple, straightforward products, where the client is not necessarily looking for us to create some kind of out-performance. So, we do a lot of index fund management, ETFs, which are all index oriented; and a lot of money market fund management, where you’re just out buying very short instruments, particularly nowadays, very, very short instruments, and getting a very small fee in return for managing that.

[cnnmoney-video vid=/video/pf/2011/12/14/ctd_schwab_ceo_hedge.fortune/]

ADAM LASHINSKY: Now, I want to go even higher and pick your brain on the state of the American investor. But to do that I want to share something I read recently about the average German investor that I found fascinating, which is that German people typically don’t own their own homes in the same way that Americans do, and they also don’t invest in the stock market in the way that Americans do. And so, to put it to you simplistically, are the German people better off than the American people as a result?

WALT BETTINGER: Well, I think there are a lot of cultural differences there. One is, in America we’ve had a longstanding love affair with the concept of capitalism and a belief that owners in the long run will do better than lenders. And I think that’s carried all the way through to investing for the average American, whether it’s through the 401(k) plan at work… Very few people sign up for their 401(k) and say, “Put all my money in cash.” They’re usually wanting to participate from an owner standpoint, differentiated from the lender side. I think the American model is the right model, although it’s imperfect, like any model, and it’s not always going to yield the best results depending on the time frame that you look at.

ADAM LASHINSKY: Do you have a position on the various public policy debates? So, for example, should we privatize Social Security, which would be a very big business opportunity for you? Are 401(k)s working? So, two questions.

WALT BETTINGER: I’ll try to do them both and remember them after I do the first one. I think privatizing Social Security is a very, very complex issue, because, as we all know, we’re not actually putting money into an account for someone that is there for them later on. Instead, we’re using today’s contributions, or taxes, to fund today’s benefits. So, it’s a tough call as to whether you could even do that, and that enters in to some of the politics. There have been some interesting proposals I’ve seen of late, such as might we allow workers below a certain age to direct a small percentage of their account to some other investment, so long as there is still a floor that they’ll get at least as much as their traditional Social Security would have given them? But the politics around this issue are so powerful. It’s almost the argument between define contribution plans, and define benefit plans, and reliance on someone else to do it for you as opposed to you having a say. So, it’s a really complex issue that we haven’t taken a strong position on either way.

ADAM LASHINSKY: And I think you make an interesting point, that Social Security is not intended to be an investment–it’s intended to be Social Security. So, I think the question that the policy makers ought to be asking is: Do we want to continue to have Social Security, or not?

WALT BETTINGER: I think there are so many issues around Social Security that you’d like to see us actually tackle: Should we have means testing?

ADAM LASHINSKY: Which means, in other words, should rich people necessarily get the same percentage payout as less rich people?

WALT BETTINGER: Absolutely. Do we cap at a certain point, as we do today, the amount that people contribute? There are so many questions out there. I think what’s interesting, without getting too far off into the political aspect, is that most people that I talk to are open and willing to find compromises and solutions, particularly if they don’t affect people who are maybe more than 10 or 15 years from retirement. And I think what our hope is, is that the two political parties get together and put the tough issues on the table and pound their way to a resolution that would be good for the country.

ADAM LASHINSKY: I was going to say that you talk to most people–it doesn’t sound like you’re referring to politicians out of those “most people.”

WALT BETTINGER: Probably, I talk with enough of them, too. [laughs] But we try to encourage the politicians in the same way: Tackle the issue. It’s going to be hard, everyone is going to have a certain amount of give-up. But for the long-term it’s what we need to do for the country, and the markets.

ADAM LASHINSKY: There’s a feeling that CEOs have an important voice in the United States. So, I’ll put it to you this way: the conventional wisdom right now is that the American people are fed up with Congress. They are not getting anything done–nothing, nothing at all. Would you agree with that perspective, and how can we change that situation?

WALT BETTINGER: Well, I think you have a natural reaction going on in Washington now, from what may have been the period of 2000 to 2008, when a lot of people felt angry and disenfranchised around the elections and the outcomes and the way they were determined. And then, you had it compounded from 2008 to 2010, where you had single party control, and with that single party control the ability to put in place programs and policies that one party wanted–and it’s sort of a natural reaction. I tend to think of things in terms of they always find their way to equilibrium. Well, after the elections we had in 2010 you didn’t have the single party control any more, so naturally you’re going to have a bounce-back to what occurred from ’08 to ’10. It’s sort of natural. Our hope is that eventually we get leadership–and that’s from all areas–Congress, from the White House–we get leadership that comes together and says this is less about the next election and more about addressing the big issues in our country. Again, with the millions of clients we serve, we don’t see the size gap between viewpoints that is often talked about in the press. We see a lot more willingness of people to come together to find the solutions than our politicians or the press at this point are talking about.

ADAM LASHINSKY: Two big pieces of legislation have an impact on all of your clients: One is the Dodd–Frank financial reform, and the other is the health care reform. Are you saying that those are imperfect pieces of legislation that, however acceptable or adequate to most people, would be different from the debate we see in the media?

WALT BETTINGER: Well, let’s first talk about Dodd–Frank. There are a number of things in Dodd–Frank that needed to be done. We didn’t end up in this financial crisis solely as a result of behavior actions of any individual or any individual company, or frankly any individual industry. There were a lot of contributions to it. But to the extent of the financial services industries’ roll in the crisis that we’re in is real, Dodd–Frank goes to address some part to that. The concern that I have around legislation like Dodd–Frank and some of the ancillary legislation around it, is when you have a crisis it becomes an opportunity for people to implement things that have nothing to do with that crisis, simply to take advantage of the crisis that we’re in. A perfect illustration–I would paint two of them for you. One is what’s going on with money market funds. We had one fund where people lost one penny, primarily institutional investors, who all understood that money funds aren’t necessarily always going to pay you back a dollar–frankly, a tiny amount of money relative to the money that’s been lost by people in banks over decades and decades. We already had tremendous changes in money market funds limiting the way people can invest them, making them safer and safer, and yet there’s still talk about should we effectively eliminate them, which a variable net asset value we think would do.

ADAM LASHINSKY: And when you say, “We had one fund,” you don’t mean Schwab, you mean the industry…

WALT BETTINGER: I don’t mean Charles Schwab I mean the reserve fund, which is the one fund that ended up paying out about 99 cents, instead of a dollar. So, I see this enormous overreaction to something that was a problem, as opposed to the initial fix. Another good example is what’s gone on with the Durbin Amendment. The Durbin Amendment seems to me more of a way to punish banks…

ADAM LASHINSKY: I’m sorry, just remind me, the Durbin Amendment is…?

WALT BETTINGER: The Durbin Amendment simply reduced the amount of money that banks could charge when a client uses their debit card. Now, this is not a Schwab issue. The amount of money we would make on that isn’t even a rounding error of a rounding error. But what it is, is a form of price fixing. It’s saying that banks shouldn’t charge X cents, they should charge something less than X cents. And if we think that that money is going to come back to us as consumers, we’re kidding ourselves. That money is going into the pocket of big-box retailers. So, if we want to go all the way to price fixing, maybe big-box retailers shouldn’t be able to use their purchasing power to buy goods and services at a lower price than the mom-and-pop retailers on Main Street. But these are the things that concern me around Dodd–Frank and other legislation. Fix the problems. Don’t use the crisis as a means to address every pet issue that some particular organization or politician would want to deal with.

ADAM LASHINSKY: From your mouth to God’s ears on that.

WALT BETTINGER: [laughs] We should talk about the 401(k).

ADAM LASHINSKY: Yes, I was about to remind you. Thank you. The question is, what is the state of 401(k)s in America? Is it working, and if it’s not working what needs to change?

WALT BETTINGER: Well, I have a particular affinity to this issue, because of course I began in the retirement industry in my early 20s. I think that the 401(k) industry needs change. I have been an advocate for this for 10 or 15 years, just hear an illustration why. In the days before 401(k), you had defined benefit plans. The employer was responsible for making up the difference in the amount of money needed in the pension fund to pay out the retirees, if they didn’t invest well.

[cnnmoney-video vid=/video/pf/2011/12/12/ctd_schwab_ceo_stocks.fortune/]

ADAM LASHINSKY: So, this is a defined benefit pension plan, meaning that… I’m an employee–the company puts money into a pension fund, I put money into a pension fund, I’m going to get this return for my retirement?

WALT BETTINGER: That’s exactly right. You’re guaranteed or promised a monthly benefit, and the employer is responsible for ensuring there is enough money there. And so, if they fall short, they have to write a bigger check. Well, in those days the employers didn’t just do this on their own. They had consultants and actuaries and advisers and all kinds of professionals to help them make decisions. But when we came out with 401(k) plans we gave employees spin dials and little cardboard sliders to tell them how much to save and how to invest their money. That makes no sense. What we need to do in the 401(k) industry, in our opinion, is two things. Reduce the cost of the underlying investments that employees have access to: For years they’ve been given access to a broad array of mutual funds, but most of them at retail pricing, and most of them actively managed with fairly high fees. That’s not what employers invested in, in defined benefit pension plans. We should give index products and low-fee investment vehicles to participants.

ADAM LASHINSKY: But you do do that, right? Now you’re talking things that you actually pitch to customers?

WALT BETTINGER: We do, but we think it should be broadly throughout the industry. The vast majority of money in the 401(k) industry, 75 percent to 80 percent, is still an actively managed product.

ADAM LASHINSKY: You would regulate that then, or legislate it?

WALT BETTINGER: I think I would make the competitive environment such that employers headed in this direction.


WALT BETTINGER: I don’t know that I’d regulate it. But that’s one. The second issue is professional advice. So, here we take someone who may be outstanding at working in a factory, or maybe they’re a pharmacist, or a plumber, and we tell them, “Here’s 50 investment options–go off and build an investment portfolio.” That makes no sense.

ADAM LASHINSKY: It makes no sense?

WALT BETTINGER: No sense whatsoever. We need to give them individualized, objective, professional advice on how to manage their money. Now, the challenge is that costs, but you could more than pay for it if you simply went to indexing as the underlying investment vehicles–you’re all-in costs would still be less than what participants pay today.

ADAM LASHINSKY: Let me play devil’s advocate with you. A perfectly good idea, but I’ve got a better one: Don’t give them any choices. Give them a plan that is more like the old defined benefit plan but is an investment plan–the administrator is going to make the decisions. Take it or leave it?

WALT BETTINGER: Well, it’s an interesting idea, but the problem is if you have shortfall who makes it up, under your scenario? And if you have excess performance, who keeps that? I actually find in talking to participants, and I’ve talked to thousands and thousands of them over the last 30 years, is that many of them want to have some say, but they also want to have some help. It’s really not that different than the retail world. Seventy-five percent of investors in the retail world would like to have someone they considered an objective professional help them with their money; the problem is only 1 out of 10 actually do, which gets us to the trust gap that we have in the industry. But most of the participants in 401(k)s like to have some say, they just want to have some help also.

ADAM LASHINSKY: I want to ask you about the mood of the American investor. So, how do people react to the volatility? I know how people react: it makes them nervous. Is it any different in 2011 than it was in 2008 or 1998, and so on?

WALT BETTINGER: I think it’s a lot different in 2011 than it was in 2008. In 2008 there was enormous fear, and justifiably so. We went through a period in the fall of 2008 where the trading of U.S. Government agency paper froze up; for a short time even the trading of U.S. Treasury bills froze up. That was a time when people didn’t know from one day to the next whether they were going to be able to go and get their money out of their bank account. In 2011, it’s different. There’s volatility. There’s a challenge, people don’t feel good about the markets, but almost half of investors think it’s a good time to invest. So, that tells me that people are looking at the volatility and the challenges of today–many people–as an opportunity. For most investors, they realize that it’s usually darkest before the dawn; and that’s when money is made, when you jump in in that time when everyone else is scared.

ADAM LASHINSKY: Now, what you just said happens to be true, but is that really what most investors think? My understanding is that most investors think the opposite, that the psychology is that they don’t appreciate the fact that the storm is the time to invest?

WALT BETTINGER: I think the way it splits is about half of investors say, “This is a great time to invest, even though I don’t like what’s going on, even though I feel worse off than I did a year or two ago.” Even though we know three-fourths of people think the country is heading in the wrong direction, half of the people think it’s a good time to invest. What our research shows is that that half is usually the half more experienced. They’ve lived through ups and downs, they’ve made some money in the past by investing at these darkest times. So, they have maybe a more balanced and a more experienced perspective than the other half, who may be newer to investing, or maybe they’ve only been in it the last 10 years or so and they’ve seen nothing but losses.

[cnnmoney-video vid=/video/technology/2011/12/11/ctd_schwab_ows.fortune/]

ADAM LASHINSKY: How concerned should the average investor be about what’s going on in Europe, and how much should someone be paying attention to what’s going on in Europe?

WALT BETTINGER: Well, it’s tough for the average investor to pay attention on a day to day basis, because we go from headline “Everything is going to be OK,” to headline “It’s not.”

ADAM LASHINSKY: I think it’s hard for the experienced business professional to pay attention.

WALT BETTINGER: [laughs] That’s true, that’s true. I think for the average investor you’ve got to put together a long-term strategy. It’s got to be focused on diversification, low cost. And then, you’ve just got to recognize that there are going to be times during your investing life cycle that you’re going to have ups, and you’re going to have downs, and you can’t get yourself all worried about trying to time it and trying to guess it. And you certainly aren’t going to make money, for most investors, trading against the computers, that are executing trades in fractions of a second.

ADAM LASHINSKY: Can you remind me, please, of the geographic breakdown of your brokerage business?

WALT BETTINGER: Yeah. We’re predominantly in the U.S., over 90 percent. We have offices in London, in Hong Kong, Puerto Rico, but we’re predominantly a U.S.-based company. But we offer investment, you can make investments, all around the world, and we’re about to introduce a series of capabilities and tools where you can buy on many of the different major exchanges, and in the local currencies, if you don’t want to buy ADR or over-the-counter.

ADAM LASHINSKY: So, I guess, this is a realization that you have an overwhelmingly U.S.-based clientele, but that the exciting or interesting, or growth opportunities in the world going forward, are going to be as much outside the United States as in it?

WALT BETTINGER: I think that’s correct. And we all recognize and have seen the statistics over the years about the predominance of market value of companies used to be in the U.S.–now it’s outside the U.S. So, prudent investors have to be diversifying globally, as opposed to just taking a look inside the United States.

ADAM LASHINSKY: And why not go more aggressively outside the United States, for prudent investors, to be new customers for Schwab?

WALT BETTINGER: Well, I think prudence means you’re in the U.S., as well as outside the U.S., and you’re looking at everything from fixed income, to equities, to real estate strategies. You’re looking in developed foreign markets, but also emerging markets.

ADAM LASHINSKY: I’m sorry, I meant from a corporate perspective.

WALT BETTINGER: I see, I see. Well, the Schwab model is a little bit unique. We combine brokerage, banking, and asset management in a seamless way, single web page. You may not realize it, behind the scenes there’s actually three or four different legal entities operating. That is permitted within the U.S.; much harder to do outside the U.S. So, for us to go outside the U.S. in a big way, we’d probably have to give up one, if not, in some countries two of those capabilities, and you really start to take away what makes Schwab unique and special from an access standpoint.

ADAM LASHINSKY: Interesting. Now, your company, of course, is Charles Schwab, so tell me about Charles Schwab, and his involvement with the business, and what it’s like to work for Charles Schwab. He’s very much alive and running around the place, right?

WALT BETTINGER: Well, it’s great to work with Chuck on a daily basis. I mean, how many people have the opportunity in a job like mine to walk down the hall, every day, and get feedback, insight, and wisdom from someone who has been in this business for 45 years–and has seen it all–from the good to the bad to the ugly, regulatory change? And so, I feel very fortunate to be in that position to work for someone who most people would identify as an icon within our space. You know, today Chuck is still very involved in providing counsel and advice within the business, particularly when asked, and is a very active executive chairman of our company.

ADAM LASHINSKY: The conventional wisdom in the corporate world is that former CEOs should not only get out of the way but stay out of the way, because it tends to make life difficult for the CEO. That’s not a problem for you?

WALT BETTINGER: Well, it certainly hasn’t be a problem for me in the three years that I’ve been CEO. I’ve, again, considered it a blessing to be able to go to Chuck and get his insights. I think where that problem comes from, and it is a valid concern in many companies, is if that former CEO isn’t able to let go. But Chuck has been extraordinary at letting go, and allowing the management team that he hand picked over the last seven years since he came back as CEO, to run the company. It also helps that the strategies that we have in place, I was able to be part of the formation of years ago, and so we continue to execute on them. Chuck had a really interesting approach to succession planning. When he had made the decision, the board had made the decision, that I would be the next CEO, Chuck would bring me in to all of the meetings and all of the big issues that he would be confronted with. And for the first year or so I would just listen to the discussion. Afterwards, he would talk to me, what he was thinking, and then he would make the decision. A couple years later, the same process, but he would actually ask my input. And we’d debate it, and then a decision would be made. And then, eventually transitioned all the way to where he’ll sit in some of the meetings, but he’ll ask my opinion, and will generally go with the decision that I’ll make.

ADAM LASHINSKY: Sounds very mature.

WALT BETTINGER: I think Chuck did an extraordinary job, and has, and continues to do an extraordinary job in succession planning. I think it’s a model, a model example.

ADAM LASHINSKY: Very last thing. When I think of Charles Schwab, when I think of Chuck Schwab, I think his towering achievement has to do with financial literacy in the United States; the towering achievement of your company is that your customers are better educated than they were about investing. Now, having said that, having covered this industry for a long time I still think that the financial literacy of Americans is extremely low, it’s not where it needs to be. You’re nodding your head. How do we solve that dichotomy? And by the way, one solution, a radical solution, the one I said earlier, is to stop trying: Maybe people shouldn’t be managing their own investments?

WALT BETTINGER: Well, I would take a different tact on that. I think we should make financial literacy part of core curriculums within schools. We should be teaching people about managing money. We should be teaching people about credit, teaching people about how to borrow, how not to borrow. One could argue that if we had undertaken this strategy 20, 25 years ago, we might have avoided at least some part of the financial crisis that we’ve been in. So, I would make it as important as learning to read and to write, and to do your math. We’ve got to educate a generation of people who don’t dig themselves whole with the decisions that they make. Now, that said, I don’t want to transfer all the responsibility to the individual. Financial services companies also have a responsibility to do things in a simpler way, a more straightforward way, without fine print, without gotchas. That needs to fall on the shoulders of financial services, and I think at Schwab we’re trying to do our part along the way.

ADAM LASHINSKY: I think part of you is going to want to agree with my next statement, but you’re not going to anyway. But I’ll throw it at you, which is that my view of financial literacy would be teach people all those things, and teach them that they should never be buying an individual stock, because they’re probably going to get it wrong.

WALT BETTINGER: Well, I don’t know that I would say never. But there is a big population out there that I agree with you on, that shouldn’t. And that’s why we’ve done things like create exchange rate funds, or ETFs. It’s also a reason why we created ETFs and then made them available to investors without commissions, because one of the things that we’ve always recommended for the smaller investor is dollar cost average; in other words, put a little bit of money away every week, every month, every quarter, and keep your costs really low, which ETFs can do. The challenge was before we came out with the no commission concept–if I’m saving 50 bucks a month and trying to buy two or three different ETFs to diversify, the commissions were eating me alive. And so, I think for many investors I agree with you completely. But let’s not forget there are investors out there who are real pros at developing a trading strategy or an investment strategy and actually have done quite well, and for them buying individual stocks is part of that strategy, and for them probably makes sense.

ADAM LASHINSKY: And one last thing. For the average investor watching this, what is the difference between picking a basket of ETFs and simply investing in a mutual fund, other than being able to get in and out each day, which the average investor shouldn’t be concerned about?

WALT BETTINGER: Well, I think what the ETF does, is the ETF is very similar to an index mutual fund in most cases, but of course very different from an actively managed mutual fund where a professional manager is trying to pick which stocks are going to go up. I think if you compare the traditional ETF to the traditional index mutual fund, they’re not really that different. There may be a little bit more transparency in the ETF than in the index mutual fund and that may be a small advantage, but I wouldn’t categorize either one as being a tremendously better investment than the other.

ADAM LASHINSKY: So, you mentioned there are many investors who probably shouldn’t be buying individual stocks: Who are those people?

WALT BETTINGER: Well, I think they’re people who don’t necessarily have the experience in investing. Maybe their portfolios are more modest, and so they can’t really create a diversified portfolio by buying 2, 3, 5, or even 10 individual stocks. Those people are much better served with a portfolio of maybe ETFs or mutual funds, or index mutual funds, and maybe getting some professional advice.

ADAM LASHINSKY: Do you have a sense, a corporate sense, of where we are in the housing crisis? Do you have a target date for when we can wave the green flag and say it’s over?

WALT BETTINGER: [laughs] I don’t know that we have a target date, but my sense is it’s still a long way out into the future.


WALT BETTINGER: It could be. We have tried in so many ways, and I’m not denigrating the ways we’ve tried. But we’ve tried in so many ways to solve the housing crisis. I’m not sure that there is a solution, other than let it go all the way through to it’s natural conclusion. And what has always happened in our country when we do that? Things come back, because they reach a point of equilibrium. Investors come in, people can now afford homes. If you let it reach it’s natural bottom, it will bounce. The challenge is that the personal price along the way to so many homeowners is great. And so, if we could find a way to support that maybe 10 percent of homeowners near the bottom on the wealth side and still let the housing market come down to its natural equilibrium, I think we’d be much better off.

ADAM LASHINSKY: Support them how? You mean something that would look like welfare, something to help them out financially?

WALT BETTINGER: Well, I don’t know whether it would be something like welfare, but maybe we need to step in and offer them the ability to get, if they’re current on their payments, maybe we need to create a program where they can get some of the principle waved, or differed, or something along those lines. But ultimately if we don’t allow things to get to their natural equilibrium, I don’t know how we come back from where we are today.

ADAM LASHINSKY: But lenders could do this on their own?

WALT BETTINGER: I don’t know that lenders can do it on their own in a large scale because many of the mortgages that were written have been packaged and sold off as mortgage-backed securities; actually, the federal government controls the majority of the mortgage market today via the securities that they underwrote and then sold off to people. So, it’s far more complex than just the bank being able to decide, “I’m going to write down the principle.”

ADAM LASHINSKY: My gut tells me that the people who are doing these Occupy Wall Street protests all over the country, they’re probably not focusing their anger at the Charles Schwabs of the world; they seem to be angrier with hedge fund managers and Goldman Sachs, and whatnot. What I’d like to ask you is, what’s your understanding of where this anger is coming from, who these people are, and what does your crystal ball say about how important this is?

WALT BETTINGER: Well, they haven’t to date focused anything of significance toward Charles Schwab, and we’re grateful for that, and we think deservedly so. We were, as far as publicly traded companies, the largest company in the U.S. that didn’t take any money from TARP, or any form of government loan in that program. I look at Occupy Wall Street and there is a side of me that understands and appreciates and can empathize with the points that they’re trying to make. Now, the points are very diverse, so it can be complex. I have three kids in college: I wonder what’s going to become of them, what opportunities they’re going to have. The thing that I question about with Occupy Wall Street is, is enough emphasis and focus being placed on how to really make change? How much of this is about making change, and how much of it is about making noise? So, I do understand and appreciate parts of it, and frankly there are parts of what they shout that I agree with. But ultimately it comes down to what can you do to drive change, and I’m not quite sure that the way they’re going about it is going to create the change that we need to have.

ADAM LASHINSKY: I mean, for example, they’re not satisfied with financial reform, you’re not satisfied with financial reform. So, that would be a high level point of agreement, right?

WALT BETTINGER: I think there are probably multiple points of agreement. I think there are a lot of differences in terms of methodology.

ADAM LASHINSKY: What I don’t have any feel for whatsoever is how much legs the movement has. Protests against the Vietnam War went of for years, until it was over. I’m not sure what has to end here! So, I’m not sure if this fades in the winter or if it’s going to be around until, I don’t know… Until Goldman Sachs (GS) doesn’t exist? I don’t know.

WALT BETTINGER: Yeah. Well, I think your guess on that is as good as mine. I don’t see anything that says that there is fatigue, and it’s going to end. On the other hand, to talk with some of the businesses whose location are nearby some of these camps and facilities, they would like it to end. So, again, I just go back to they’re got some really good points and some very valid concerns that every American has to be feeling. But we need to find a path to a solution, and I’m not sure the approach they’re taking today is going to drive that solution.

ADAM LASHINSKY: Very good. Walt, thank you very much.