May 14, 2008
Capitalism Without Failure Is Like Christianity Without Hell
This was another classic quote from Warren Buffett during the annual Berkshire Hathaway shareholders meeting, where he and Charlie Munger give their only planned news conference each year.
He is specifically referring to bailing out more banks and lenders who had a large part in creating the current trouble we are in as a whole. Buffett said this about the Bear Stearns bailout:
“The Federal Reserve’s bailout of Bear Stearns Cos. likely prevented a crisis among investment banks because Bear Stearns held a large number of derivative contracts with other investment banks. If Bear Stearns went bankrupt, all those derivatives would have to be valued at zero or unloaded quickly.”
But he and Munger agreed that not every business or investment bank should be rescued, because failure is an important part of capitalism (see title of this post).
They also aren’t opposed to Congress helping certain “homedebtors” (as opposed to homeowners) who were taken advantage of and misled:
“Lenders and investors who were dumb enough to deal in subprime mortgages should not receive any special help, Buffett said, but if homeowners were deceived about the terms of adjustable mortgages, they should be helped.”
When Warren speaks, it is usually very wise to listen and heed his advice.
Ellie at Redfin said:
Great analogy. Buffett is right on this one, and unfortunately it seems there were a lot of deceptive lending practices in the last few years- witness the head of Countrywide’s congressional testimony last week.
May 14, 2008 9:31 AM
David said:
You know. I have 4 brokers’ licenses for stock trading. The SEC could haul me up for securities fraud and I could get thrown in jail/fined for the mere appearance of fraudulent practices.
I’m quite laissez faire, but I don’t understand why there isn’t a bigger movement to require a license for a mortgage broker. It didn’t take long for me to get my licenses, and you can still do some work while you’re getting them.
May 14, 2008 9:39 AM
BF said:
BUYERS, SELLERS, REALTORS, MORTGAGE BROKERS, INVESTMENT BANKERS, AND SO ON….GREEDY GREEDY GREEDY. THEY ALL GOT WHAT THEY DESERVE.
I HAVE FRIENDS WHO ARE WALKING AWAY FROM LOANS THEY CAN AFFORD TO PAY, BUT WHO WANTS TO PAY $600,000 ON A PROPERTY THAT’S ONLY WORTH $450,000 AND DROPPING. BY THE WAY, THEY DID FLIP A HOUSE IN 2006 AND MADE $120K. THEY WEREN’T COMPLAINING ABOUT BEING TAKENED ADVANTAGE OF THEN. LIKE I SAID..GREEDY GREEDY GREEDY AND THEY GOT WHAT THEY DESERVED!!!!
May 14, 2008 12:29 PM
Janis Mara said:
This blog post deserves an award for Headline of the Year!
May 14, 2008 3:27 PM
david g said:
Ellie, Angelo Mozilo is quite the piece of work. Heh.
David, I was sure there would have been further progress in licensing mortgage brokers as well. But nothing so far. Oh well.
BF, you are correct - walking away is the right business decision for millions of homedebtors.
Janis, you are too kind. Nothing like a concoction of business, real estate and religion!
May 14, 2008 9:32 PM
mrbogue said:
damn BF, they got what they deserved??? with friends like you who needs enemies.
May 16, 2008 12:28 PM