He added this can be fixed through regulation, as people can’t depend on altruism in capitalism.
“The SEC (Securities and Exchange Commission) has the complete authority to deal with it in a way that makes sense,” Grantham said, adding a firm regulatory hand and diehard capitalism work very well together.
“You need a policeman on the corner of Wall and Broad streets,” he said.
Grantham blamed the current state of the stock market on recent Fed chairmen starting with Alan Greenspan and up to the current chief, Janet Yellen, who he said will rescue the stock market whenever prices break. He noted the Fed’s action creates seven-year bull markets and 18-month bear markets, which he said is perfect for stock options.
It allows firms to ride the bull market higher, and rewrite the stock options during bear markets. Among his suggested fixes for stock options is to make them for five years and index them to an industry norm.
Grantham is known for his pessimistic outlook, including his concerns over the depletion of natural resources and worries about climate change. He addressed these issues at the beginning of his speech.
“I am not pessimistic, by the way; it is you who are optimistic,” he joked.
Grantham said that while he sounds bearish, he believes no problem is insurmountable.
“If we rise to the occasion we will overcome resource problems and deal with climate change,” he said. “The question is will we?”