Now Schroeder turns to Munger

[Guest kumar]

Billionaire Munger Offers Us a False Choice: Alice Schroeder

 

http://www.bloomberg.com/news/2010-09-21/billionaire-munger-offers-us-a-false-choice-alice-schroeder.html

 

.....people may wonder whether Munger’s statements are influenced by Berkshire’s large holdings in Wells Fargo & Co. ($8.5 billion), the U.S.’s biggest home lender, as well as its $5 billion investment in Goldman Sachs Group Inc. It happens that Munger’s financial interests do line up with his words.

 

If that’s not a coincidence, it’s probably because he puts his money where his mouth is rather than the other way round. In choosing sides between the opposing interests that inevitably arise in commerce, Munger and Buffett identify with the lender, not the borrower; with the bank, not the depositor; and that’s how they invest.....

[Parsad]

I think Schroeder constantly writes about Buffett & Munger because there is a large, built-in audience.  She's gained some notoriety, has written a couple of books on the subject, and was given more free reign than any other author.  While she's not entirely incorrect regarding Munger's comments about banks and the common man, I think she's also taking it a bit out of context. 

 

Munger wasn't saying that the banks deserved the bailout and the common man didn't.  Only that the damage to the landscape was limited by bailing out the banks, rather than the other way around.  Due to the amount of leverage involved, $1T in bailouts to the banks probably prevented the planet from a domino-like chain reaction and $10T in counterparty losses...in other words, complete insolvency of the banking system.  Schroeder unfortunately does not recognize this.  Cheers!

[Partner24]

I didn't like the Snowball book (red 2 or 3 chapters and then closed the book), but that article has some valid points of view. As long as the comments are fair, even if they are negative, I welcome them. It's good to see the two sides of a coin.

 

Cheers!

[T-bone1]

Parsad, I agree with you that Munger (and Buffett) are saying that the bank bailout was good because it saved the common man from a worse fate, not because it saved the banks.

 

What I would like to see Munger or someone else say is: The bank bailouts were a neccesary evil, and we are all better off for them being bailed out or things could have been a lot worse but the bankers and the shareholders of the banks (and maybe even unsecured creditors) should have taken a big hit.

 

I am mostly in favor of saving the financial system (I think a total collapse might ultimately have been best for the US in the long run, but caused too much human misery), but there is no reason that the bankers or their shareholders should have been saved. I have yet to hear a convincing reason why unsecured debt shouldn't have been converted into a 90% equity position at every bank. This would avoid the problem of government ownership, punish the equity holders for poor supervision, and lower leverage at the banks.

 

I think this is where Munger and Buffett are talking their book. They don't generally criticise companies they own, but Munger does obliquely say that it shouldn't be such a hyper-competitive business that reward hyper-competitive people. Purcell was forced out of MS for being too conservative. Paulson forced out Corzine then double crossed Thane (or was it the English guy?). Major financial institutions shouldn't be run like 3rd world countries, where the leaders need to bribe their subjects each year to avoid a coup d'etat.

[Guest longinvestor]

In the headline crazy world we live in today, Munger's soundbites are fodder for the press. It is a shame that people like Schroeder focus on the ointment while ignoring what folks like Munger, Bogle et al have been saying about the root cause of the mess which is the overbloated, value-destroying nature of the financial services world. The brightest minds are drawn to this world like the California gold rush. Munger and Bogle have unequivocally said that it has to be stopped in it's tracks. Now this would be the headline people should be hearing more of. The world would be a better place. Ah, but Schroeder is looking for notoriety, not solve anything.

[nodnub]

Ah, but Schroeder is looking for notoriety, not solve anything.

 

I agree. 

 

I think Alice is being disingenuous for the sake of getting eyeballs on her article.

 

If more large banks had failed I believe the instability in the system would have caused many fundamentally sound banks and other institutions to fail. It would have been obvious to the public that the FDIC would not be able to insure all deposits. No one wants to wait for the FDIC or the govt to eventually pay them their deposits back. They would tranfer it out of that bank immediately at the first sign of trouble. There would have been a panic and bank runs would have spread (since it's electronic now, it can happen within hours without lineups in the street).

 

In my opinion not much that Alice says these days is worth discussing or listening to.  I wish my Internet connection came with a "minus Alice" filter.

[tnp20]

I have spoken to Alice Schroeder in the past and she has some valid points. Munger and Buffett aren't perfect and its good to see someone chip away at their godly pedestal and their biased view and present alternates wether you agree with them or not, additional light shed can be either considered or discarded.

 

People like Stiglitz and Krugman advocated nationalization of the banks as a remedy to the crisis. This was an alternate plausible solution that would have rightfully wiped out bond holders and stockholders of banks and no doubt the collateral damage would have been steep but the rearchitecture of the financial system would have been quicker rather than this slow peice meal approach. Stigliz has operational experience through IMF and Worldbank  with other bank crisis around the world and in other crisis banks were nationalized and those economies did recover....so its an alternative solution.

 

Paulson consulted Buffett in the heat of the crisis. Buffett isn't exactly gonna say I am for nationalization of the banks. The rest is history.

[tnp20]

Buffett was against breaking up of microsoft during the anti-trust fight, when MS had clearly abused its monopoly power.

 

Schroeder is actually a very brave women (foolishly or otherwise) to choose targets such as Buffett and Munger.

[alwaysinvert]

It's just such a silly position to have to always whine about a critic who doesn't mention all the positives every single time they criticize something. C'mon you people.

[Parsad]

I have spoken to Alice Schroeder in the past and she has some valid points. Munger and Buffett aren't perfect and its good to see someone chip away at their godly pedestal and their biased view and present alternates wether you agree with them or not, additional light shed can be either considered or discarded.

 

I have no problem with this, but when they are your meal ticket, it's kind of hypocritical to chastise them.  Kind of like the hooker blaming the john for the world's ills!  And no, I'm not saying that Schroder is a hooker or Buffett is a john, but there is a reciprocal relationship where neither should be more self-righteous than the other.  

 

Kind of like the papparazzi and celebrities...I have no sympathy for either, since its a symbiotic relationship.  Buffett made his bed and Schroeder took advantage.  Neither should be flinging mud now.  The truth is that Schroeder is the only one doing so...in public at least.  Cheers!

[T-bone1]

I agree . . . there is nothing wrong with criticizing Buffett and Munger . . .

 

but there is something that doesn't pass the smell test with Shroeder.  Her only claim to fame is that Buffett invited her into his inner circle and allowed her to write a sure bestseller purely based on the access he allowed her.  For her to turn around an make a cottage industry out of criticizing him at every turn - in sensational fashion no less - stinks.  Of course Buffett isn't perfect, but she didn't uncover a watergate-like scandal at Berkshire either.

 

Buffett is an old man nearing the end of his carreer, who has created more jobs and wealth for this country than almost anyone else living or dead. During this time he has made himself unpopular at times by striving for better corporate governance, telling it like it is, and leading by example. He is giving all his wealth to charity and his ethics are second to none.  Does this make him above criticism or reproach? Absolutely not.  But Shroeder was given more information than anyone else so that she could tell it like it is in the book (and I think sensational family drama went beyond telling it like it is - implying someone's dead wife had been sleeping with her tennis coach doesn't exactly add to the discourse). Whatever she did in the book is fine, but to go on the road and keep hammering this guy for attention/financial gain is dispicable.

 

If she is a journalist and this is her duty, why not find someone else to pick on? Buffett behaves better than 99% of American CEOs in all things. If she isn't just vindictive or disgustingly profiting from the Buffett aura, why not apply her superior journalistic skills and pass judgement on Jamie Dimon, Hank Paulson, or any of the other 99% of CEOs who are more deserving of criticism for their self-dealing, talking their own book, etc.

[oec2000]

Schroeder should be entitled to make fair-minded criticisms of Buffett's & Munger's views on business and the economy. i doubt that they would mind.

 

On the whole, I thought the Munger article was fair although she should have offset his "suck it up" remark with his comment on not meddling with social security to reduce the deficit. I believe his point was that Americans should be able to find a way to help the less fortunate by making sacrifices elsewhere. It seemed obvious that he cares about those who truly need help. On the other hand, he clearly does not think that all "underwater" homeowners need help which is the justification for the "suck it up" comment.

 

As for Schroeder's "attacks" on Buffett, some of which are clearly less balanced, I wonder whether they are driven by her reaction to seeing a private side of Buffett that we don't know or understand. Could it be she is frustrated by the fact that the public is blind to the flaws of the man it idolises? I am skating on the very thin ice of speculation here but I thought I would play the role of devil's advocate. It's fun to play amateur psychologist - after all, understanding psychology is key to understanding Mr Market - on a quiet afternoon.

[alwaysinvert]

If she is a journalist and this is her duty, why not find someone else to pick on? Buffett behaves better than 99% of American CEOs in all things. If she isn't just vindictive or disgustingly profiting from the Buffett aura, why not apply her superior journalistic skills and pass judgement on Jamie Dimon, Hank Paulson, or any of the other 99% of CEOs who are more deserving of criticism for their self-dealing, talking their own book, etc.

Faulty logic. Should one not care about the disadvantaged kids in the suburbs because of the starving children in Africa? Not punish robberies until every murderer is jailed? Not cure people with the flu until the ones with brain tumours have been tended to? And no one should report on the crimes of any other dictators than Stalin and Hitler.

 

Of course, she is going to write about Buffett and Berkshire; it's her area of expertise. Likewise the general practicioner prescribes antibiotics and the surgeon performs surgery.   

[Parsad]

Faulty logic. Should one not care about the disadvantaged kids in the suburbs because of the starving children in Africa? Not punish robberies until every murderer is jailed? Not cure people with the flu until the ones with brain tumours have been tended to? And no one should report on the crimes of any other dictators than Stalin and Hitler.

 

Of course, she is going to write about Buffett and Berkshire; it's her area of expertise. Likewise the general practicioner prescribes antibiotics and the surgeon performs surgery.

 

I understand what you are saying Alwaysinvert, but sometimes people do things just because it's in their self-interest and they don't give a damn about what is ethical or not.  The general practioner who prescribed Michael Jackson.  The surgeon who removes organs for the black market.  The former analyst who writes on a subject because that will give him/her the highest speaking engagement fees and notoriety.  Glenn Beck!   ;D  Cheers!

[Guest ValueCarl]

I hope I don't get chided for writing this while siding "somewhat" with Alice, but it bothers me greatly when comments like these are written.

 

<Parsad, I agree with you that Munger (and Buffett) are saying that the bank bailout was good because it saved the common man from a worse fate, not because it saved the banks.>

 

 

Why? Because the state in addition to stakes of those two's, "Great Inflationists' Empire," and what they would lose-still a present tense risk factor counter to other opinions here-would be far greater than this "common man" whom their world of capitalists sometimes exhibits little respect towards.

 

<Parsad, I agree with you that Munger (and Buffett) are saying that the bank bailout was good because it saved the common man from a worse fate, not because it saved the banks.>

     

 

[Parsad]

Why? Because the state in addition to stakes of those two's, "Great Inflationists' Empire," and what they would lose-still a present tense risk factor counter to other opinions here-would be far greater than this "common man" whom their world of capitalists sometimes exhibits little respect towards.

 

No Carl, because the average citizen wasn't about to take down the entire banking system.  You had counterparty liabilities that extended like a spider-web from one institution to another.  If an Irish bank goes down, it takes down maybe two other large banks, plus perhaps an insurance company, which in turn would take down another large bank in England, and another one in Spain.  If you had AIG go down, it would have made Lehman Bros look like a picnic.  

 

We would not have faced another depression...it would have been far worse!  The interconnectivity and leverage was unprecedented, primarily due to derivatives.  The bailouts didn't save just the fat-cat bankers, it saved everyone from going down.  Buffett gave the heart attack patient analogy, but a better one would be the Titanic.  Complaining about who gets to sit on a lifeboat and who gets a life preserver is a stupid thing to do when you've got 30 minutes to evacuate the ship.  

 

I think that is what Munger was trying to say.  The bailouts saved as many people as possible, whereas a handout would have saved only a portion of the population, and only temporarily as the system collapsed over the following decade or two.  Cheers!

[Guest ValueCarl]

You make an outstanding argument and defense for what was done even as Ireland now grapples with its debt problem related to these deadly daisy chains. You could even add that it was none other than Warren E. Buffett who telegraphed this horrific domino effect as early as 2003. Many who were listening like me, would have been wise to exit their bank portfolios in due course, even if they were in some cases, a bit early to where prices of some names ultimately went.

 

I am not sure we are arguing apples for apples here, however.

 

Some would like to say that statistically, if all the money in the system were taken away from all the participants, and redistributed as an equal sum to each capita afterwards, that the same class system would be replicated in due time later on.

 

I'm saying, if there were a system which needed testing across the board from top down and bottom up as a lesson for its reckless ways over decades and centuries, then let that system be tested. Or more succinctly, let the creative destruction begin.              

[nomore]

Just curious, what if it wasn't Alice Schroeder who made those comments against Munger?

 

Here's some other critics of what Munger said.

 

http://globaleconomicanalysis.blogspot.com/2010/09/amazing-arrogance-gall-chutzpa-and.html

 

Nauseating Insensitivity

 

If that kind of arrogant insensitivity does not make you nauseous, what will?

 

It's hard to know where to start, but let's start with a blatant lie. This was no "little bailout", this was a multitrillion bailout, not just from the Fed and Congress but from every central bank in the world.

 

One of the beneficiaries of course was billionaire Charles Munger. Middle class America was the loser.

 

Displays of Ignorance

 

The biggest display of ignorance in Munger's rant is his comparison of the current financial mess to Weimar Germany. Forgive me for asking but pray tell in what kind of fairytale fantasyland is the current deflationary credit bust remotely related to the war reparations imposed on Germany after the end of World War I that gave rise to Hitler?

 

Need for a Culture Change

 

The ridiculous Weimar comparison was not the Munger's most galling statement, however.

 

This is: “Now, if you talk about bailouts for everybody else, there comes a place where if you just start bailing out all the individuals instead of telling them to adapt, the culture dies.”

 

The one thing we desperately need is a culture change. Instead, we made too big to fail, too bigger to fail. We preserved a culture that benefits billionaires like Munger and greedy CEO's that helped cause this mess. That culture benefits no one else.

 

Yet Munger wants us to “suck it in and cope” and expect to be happy that he did not get wiped out.

 

You know what? It would have been a damn good thing if the culture died and assholes like Munger got wiped out. Munger just proved beyond a shadow of a doubt Wall Street's culture was not worth saving.

 

Mike "Mish" Shedlock

 

------------------------

 

That posting got a reply from Janet Tavakoli, author of Dear Mr. Buffett, in another posting: http://globaleconomicanalysis.blogspot.com/2010/09/hsbc-commercial-account-manager.html

 

In Third World America: How Our Politicians are Abandoning the Middle Class and Betraying the American Dream, Arianna Huffington describes how Wall Street insiders used the financial crisis to bribe, coerce, and manipulate Washington into bailing them out and handing them unprecedented, unconditional windfalls.

 

Warren Buffett Jumped the Squid

 

Today's interested men defend the bailouts and subsequent absence of felony indictments. They include Warren Buffett, Chairman and CEO of Berkshire Hathaway, and Berkshire's Vice-Chairman, Charlie Munger.

 

Charlie Munger's War

 

Andrew Frye of Bloomberg News reported Charlie Munger's recent remarks to law students at the University of Michigan. Munger suggests we shouldn't be "bitching about a little bailout;" we should have wondered why the bailout wasn't even bigger.

 

Munger conjured the specter of Germany's Weimar Republic in an attempt to justify the bailouts: "We ended up with Adolf Hitler." ZeroHedge, home to finance's mainly masked throw downs, spoke for many (including me), when it retorted that Germany's hyperinflation was born from "wanton money printing" and set the stage for Hitler.

 

When it comes to bailouts that will hit middle class taxpayers most, Munger has a double standard:

 

"The 86 year old told the 25 million of Americans who comprise the 16.7% of the underemployed population in the country, to "suck it in and cope." Not only that, but apparently, all those who have been without a job for 99 weeks and more and no longer have recourse to insurance benefits, should "thank God for bank bailouts." Why of course he would say that: after all $26 billion worth of direct BRK investments were the recipient of over $95 billion in bailouts."

 

[From] ZeroHedge, September 20, 2010: Munger Tells 25 Million Americans To "Suck It In", And To "Thank God For Bank Bailouts" As BRK Benefits From $95 Billion Of TARP Funding

 

We bailed out banks that were the key architects of much of our national misery and currency destruction. Those living in poverty will have a much more difficult time bettering themselves, as much of the middle class sinks.

 

----------------------

From ZH: http://www.zerohedge.com/article/munger-tells-25-million-americans-suck-it-and-thank-god-bank-bailouts-brk-benefits-95-billio

[Guest ValueCarl]

I think the Germans had a long memory-war reparations, excessive printing-and Hitler ignited their fury to smell blood again! I only know this because my grandfather, God rest his soul, fought WW1 German, and saw the handwriting on the wall 1933-1934, just before uprooting his wife and heading to America for good. He had enough of being told by extensions of his wife's farming family, to "shut the hell up," when criticizing Hitler's regime or else!

 

My grandfather's courage to leave his homeland and come this country as an immigrant without connections or many resources, remains his greatest gift to our family today. Don't think that it was a cake walk for a gifted intellectual of German descent, to come to America during his period. Changing a K alpha to C was insufficient camouflage for his plight including discrimination. 

 

Let these words resonate to this board today. Never prevent freedom seeking people from speaking their minds even when it makes your belief systems uncomfortable assuming they are doing so in non threatening ways.

 

Best wishes for all participants taking part in these discussions of finance, especially behavioral, which are permeating this board regardless of which direction we are heading.    ;)   

[T-bone1]

Nomore, I have no problem with zero hedge or anyone else critcizing these guys, they are fair game, and zero hedge is something of a muckraking forum. My problem is only with shroeder, who isn't in that line of work, taking advantage of the access and fame afforded her by Buffett to become his personal number one critic for profit (or just to be vindictive for some unknown crime).

 

I'm not saying she can't do this, I'm just saying that I find it a little repulsive that she of all people would do this for money. If santelli wants to become a buffet basher, that's fine with me, but I think shroeder got her fair chance in the book.

[tnp20]

T-bone

 

I think you can rightly say she profited from the book, but I doubt you can say she profited from the articles......she does these articles about once per month.....going rate on these short articles is $250-$500.

 

Hardly profits to talk about ! That's not her motivation.

 

From having communicated with her (not that I know her well)  my sense is that Buffett spurned her after the book was published (I have not read the book) , perhaps justifyably so, but she feels there is another side to him that needs to be exposed. They may also be some bitterness factor in this which leads to question of her objectivity. But she is a very smart lady nonetheless.......

 

Buffett and Munger by all accounts are investing geniuses. They are some of the most ethical and intelligent roles models we know.

 

But there are instances which raise questions about thier purity......

 

Buffet was supoened by congress during investigation into the ratings agencies (He owned Moodys during the crisis). He did his best through his lawyers to avoid appearing. Finally he showed up under pressure. To the question of wether he knew there was a housing bubble, he claimed that no one could have forseen the housing bubble and the collapse.

 

This was the time when he built one of the greatest CASH war chest of all times......one must look at peoples actions rather than the words.

 

 

 

[nomore]

T-bone: Let me state the stance first. I was disappointed with her book and I am certainly not a fan of Schroeder. However, like it or not, she now has a column with Bloomberg and I would assume that she would be expected to write about Warren and Charlie.

 

Let's take schroeder out of the picture.

 

My issue is on what's been said. Given, Berkshire vested interest in Wells Fargo and Goldman Sachs, I feel what Charlie said was rather tacky. Something's perhaps best left unsaid.

 

Let's take Charlie out of the picture and imagine that Lyold Blankfein said exactly what Charlie had said. How then?

[twacowfca]

I think the Germans had a long memory-war reparations, excessive printing-and Hitler ignited their fury to smell blood again! I only know this because my grandfather, God rest his soul, fought WW1 German, and saw the handwriting on the wall 1933-1934, just before uprooting his wife and heading to America for good. He had enough of being told by extensions of his wife's farming family, to "shut the hell up," when criticizing Hitler's regime or else!

 

My grandfather's courage to leave his homeland and come this country as an immigrant without connections or many resources, remains his greatest gift to our family today. Don't think that it was a cake walk for a gifted intellectual of German descent, to come to America during his period. Changing a K alpha to C was insufficient camouflage for his plight including discrimination. 

 

Let these words resonate to this board today. Never prevent freedom seeking people from speaking their minds even when it makes your belief systems uncomfortable assuming they are doing so in non threatening ways.

 

Best wishes for all participants taking part in these discussions of finance, especially behavioral, which are permeating this board regardless of which direction we are heading.    ;)     

 

That was an excellent, coherent post.  Thanks for sharing your family's story about coming to America.

[Guest ValueCarl]

Very true, indeed. You can't expect money mongrels or men who only place their trust in shekels to be "Christ like." It's just not in the nature of their gene pool. That doesn't mean these two aren't the best in the business world for following "The Golden Rule," however.     

 

<Buffett and Munger by all accounts are investing geniuses. They are some of the most ethical and intelligent roles models we know.

 

But there are instances which raise questions about thier purity......>

 

 

In the case of the housing bubble, I had documented Buffett's reference to that "bubble" in the commentaries he made during the sale of his Newport Beach summer house once shared with his wife prior to his loss. He did a very simple math analysis for land and RCV showing the lunacy of the price he received even before the pinnacle. It also made no sense to talk about his neighbors in Omaha not seeing a bubble, when their home prices, for the most part, remained immune from the rampant speculation taking place around the majority of the country.

 

His Obama support along with the corresponding commentary to that Quick girl, also alarmed me. When discussing politics, he pointed out to her that, his most important question to any would be leaders was something like, what would you enact that was so important to your own belief systems, even if it alienated you from your party's politics?

 

Becky astutely asked him, what did Obama say when you asked him? Buffett responded, "I didn't ask him."  :(   

 

 

[Guest ValueCarl]

This article may be pertinent to my grandfather's earlier plight, and the discussions taking place on this board to where we may or may not be heading.

 

Unlike some here, although far away due to my grandfather's wisdom to change geographies in addition to my lucky upbringing as a result of my own father's success,

I was groomed on how bad things can get, including the wheel barrow stories from his father in order to purchase bread.

 

When you place people at risk with undue restraints tied to economics, indeed, unintended consequences will occur. The human being is "unpredictable" in that way, especially when you take food and ways of life from them.

 

I have always suggested to root out the rabble-rouser trouble makers, who more often than not, profit from supplying both sides their ammunition in war disputes like this.

 

Where do they live and breath today? Who knows "The Secrets of" their "Temples?"

 

For he who does, should not be afraid to turn these MONEY CHANGERS" tables over on them! imo          

 

The principal representative of the British Treasury at the Paris Peace Conference, John Maynard Keynes, resigned in 1919 in protest at the scale of the demands, warning correctly that it was stoking the fires for another war in the future.

'Germany will not be able to formulate correct policy if it cannot finance itself,' he warned.

When the Wall Street Crash came in 1929, the Weimar Republic spiralled into debt.

What the Bank of England calls ‘quantitative easing’ now was started in Germany with the printing of money to pay off the war debt, triggering inflation to the point where ten billion marks would not even buy a loaf of bread.

 

 

Read more: http://www.dailymail.co.uk/news/article-1315869/Germany-end-World-War-One-reparations-92-years-59m-final-payment.html?ITO=1490#ixzz10qyfwgY1    

 

http://www.dailymail.co.uk/news/article-1315869/Germany-end-World-War-One-reparations-92-years-59m-final-payment.html?ITO=1490#ixzz10qC2nZ00