Thursday, January 22, 2009

If There is Always a Fire, You Can Never Look for the Arsonists

It is going to be a balmy 40 degrees tomorrow! I am actually excited about that. My new fishing license came in today. That is not going help my fish catching withdrawals at all.

If There is Always a Fire, You Can Never Look for the Arsonists
Warren Buffet is pretty much accepted by all as a great investor. His firm, Berkshire Hathaway, has always been a chart topper compared to the market. For that he must be admired and respected. With that in mind I must offer that I was a bit disappointed by Mr. Buffet's remarks making the rounds today from a Susie Gharib Nightly Business Report that airs on PBS. See local listings here.

The interview is quite extended, and perhaps it is a bit nit picky to take out a couple of selected parts, but these passages really caught my attention and I think they bear some thought.

Excerpts from a partial transcript provided by Calculated Risk where Susie Gharib is noted as SB and Warren Buffet is WB:
SG: But when you look at the economy, what do you think is the most important thing he (Obama) needs to fix in the economy?

WB: Well we’ve had to get the credit system partially fixed in order for the economy to have a chance of starting to turn around. But there’s no magic bullet on this. They’re going to throw everything from the government they can in. As I said, the Treasury is going all in, the Fed and they have to and that isn’t necessarily going to produce anything dramatic in the short term at all. Over time the American economy is going to work fine.

At least Mr. Buffet is honest. He acknowledges that there is nothing that can really be done to stop what is happening. But then here is my first point of confusion; Mr. Buffet surely is a "free market" type and yet he is calling on the government to go "all in" with everything they have. In addition he says this will not do anything in the near term. Why Mr. Buffet thinks doing nothing would have a worse or better effect he does not explain. Also he offers no commentary along the lines of moral hazard or taxpayer exposure. He sees things only through the lens of market dynamics.

The next segment is truly where we see some insight into the Wall Street type of thinking. Continuing:
SG: There is considerable debate as you know about whether President Obama is taking the right steps so we don’t get in this kind of economic mess again, where do you stand on that debate?

WB: Well I don’t think the worry right now should be about the next one, the worry should be about the present one. Let’s get this fire out and then we’ll figure out fire prevention for the future. But really the important thing to do now is to figure out how we get the American economy restarted and that’s not going to be easy and its not going to be soon, but its going to get done.

SG: But there is debate about whether there should be fiscal stimulus, whether tax cuts work or not. There is all of this academic debate among economists. What do you think? Is that the right way to go with stimulus and tax cuts?

WB: The answer is nobody knows. The economists don’t know. All you know is you throw everything at it and whether it’s more effective if you’re fighting a fire to be concentrating the water flow on this part or that part. You’re going to use every weapon you have in fighting it. And people, they do not know exactly what the effects are. Economists like to talk about it, but in the end they’ve been very, very wrong and most of them in recent years on this. We don’t know the perfect answers on it. What we do know is to stand by and do nothing is a terrible mistake or to follow Hoover-like policies would be a mistake and we don’t know how effective in the short run we don’t know how effective this will be and how quickly things will right themselves. We do know over time the American machine works wonderfully and it will work wonderfully again.

SG: But are we creating new problems?

WB: Always

I think this segment sums up where we are right now. The first take home point is that nobody has any clue as to what to do. The strategy is to throw the kitchen sink at a problem and hope something happens so that "the American machine works wonderfully". Now that is what I call a plan! Simple and elegant is how I like my plans of action and you cannot get much more simple than to spend and borrow as much as you can and then hope. Only 3 actions involved: SPEND,BORROW, and HOPE. Sounds like a winner.

The second take home point is far more sinister. Mr. Buffet when asked about what steps are being taken to stop future abuses of lending and easy money from the FED plays the "tanks in the streets" scare card instead of offering any insight or ideas. The line "Let’s get this fire out and then we’ll figure out fire prevention for the future" is pure bullshit. If this fire gets put out all those that were behind the fire will be giving each other high fives and telling each other how smart they are. Nobody will have to answer for the many mistakes made. Witness former Merrill CEO John Thain getting the boot from Bank of America after he almost surely:
-Hid mounting losses from BAC before the merger was complete
-Paid out bonuses to MER employees on an accelerated basis to avoid missing out when BAC found out the truth

John Thain is a criminal. An arsonist of the banking and money system. Alan Greenspan is an arsonist of monetary policy. Hank Paulson is an arsonist of taxpayer funds. Ben Bernanke is an arsonist of the free market. There are many others.

Luckily for them we are too concerned with "throwing everything there is" at the problem in a panic over the fire that was set and there is no time (or interest?) to find the criminal arsonists responsible for the conflagration. As long as a 5 alarm fire is raging, the fire inspector will not have time to find the culprits.

This is pure arrogance. The same collection of minds that brought the financial system to it's knees now say "Let us handle this and ask no questions" as if they had nothing to do with the whole thing. By spreading panic and forcing fast decisions without debate the arsonists hide their own tracks by covering them with public worry. This is craven and empty.

Things are bad on a macro level. The larger issue is that this country is bankrupt of responsibility and integrity. At some point things will either calm down or break. Neither of those two outcomes are good for the arsonists. Do you think they might start more fires at that point?

Have a good night.


Lisa said...

Warren Buffet became a rich man by being a very smart businessman. However, in the last few years, he has said some pretty bizarre things. I don't know if he began to suffer from "I'm so rich, I feel guilty", or if it's something organic. Whatever the cause, he is definitely slipping off his pedestal. He once said he would never have anything to do with Wall Street (investment banks), then he goes and throws money into Goldman Sachs...go figure.

Anonymous said...

Screw Warren I'm betting against America. Hate to do it but my government hasn't given me any other choice.