5 ms·

Charlie Munger on Greece, idiot bankers, accountants and more...

77 points by dchs 16y ago

oliveoil 16y ago
earlier post about Munger this week on HN: http://news.ycombinator.com/item?id=1331591 http://news.ycombinator.com/item?id=1331591
tome 16y ago
Interesting that he says: "Goldman has the best morality of any of the big banks". Goldman have taken a lot of flak recently. Perhaps it because they were the survivor.
- yummyfajitas 16y ago
  I think it's more than just surviving and coming out on top. They came out on top because they have an extremely short term focus: buy stuff, package it, flip it, move on. That's their business model and it allowed them to change direction when the crisis it. In contrast, companies with a focus on long term investments were crushed (e.g., WaMu). This goes against the dogma that "those short sighted companies, aiming for profits in the next quarter, now look at them." Therefore, Goldman must have cheated.
  - tome 16y ago
    But Munger and Buffett are all about the long term. Why would they then admire Goldman Sachs who you say are obsessed with short term?
    - cynicalkane 16y ago
      Munger and Buffett are long-term investors. They have nothing against short-term positions, so long as those positions aren't confused with investments.
      - eru 16y ago
        Yes. They just do long-term investments in relatively simple businesses, because that's what they do best.
- ericb 16y ago
  I think Buffett and Munger mean what they say about valuing honesty, but are nonetheless human and therefore prone to rationalization.
- jordanb 16y ago
  His saying that Goldman was just playing with the rulebook Congress gave them is disingenuous. Goldman's lobbyists wrote the rulebook. The financial industry -- and Goldman in particular -- have been playing congress like a fiddle for decades now. They had the rules that led to the collapse because they wanted those rules, because that would make them the most short-term money.
eru 16y ago
> When Hitler was in his bunker before he shot himself, he said, "This isn't my fault. The German people just don't appreciate me enough." Charlie Munger knows his history. I wouldn't have expected a knowledgeable quote about German history.
- tptacek 16y ago
  I was struck by the two chemistry references, too.
- gruseom 16y ago
  It sounds rather like folklore to me, and I can't find the quote after a few minutes of googling.
  - kn0thing 16y ago
    Aye, all reports indiciate the only one in the room with him before the suicide was Braun and she didn't walk out of there either. He certainly felt that way, but I don't think I've ever seen any evidence to show that those were his final words. It's a great quote, though.
    - eru 16y ago
      Oh, the story with the bunker is a bit of a metaphor. Hitler ordered scorched earth tactics at the end of the war, ostensibly because this should have made it harder for the allies. But in his ideological point of view, this was because he thought the Germans weren't worth it anymore. See http://www.br-online.de/wissen-bildung/collegeradio/medien/geschichte/nerobefehl/ http://www.br-online.de/wissen-bildung/collegeradio/medien/g... and http://de.wikipedia.org/wiki/Nerobefehl http://de.wikipedia.org/wiki/Nerobefehl and http://www.lwl.org/westfaelische-geschichte/portal/Internet/finde/langDatensatz.php?urlID=602&url_tabelle=tab_websegmente http://www.lwl.org/westfaelische-geschichte/portal/Internet/... Sorry, all of the sources are in German. (But that's German history for you.)
      - gruseom 16y ago
gruseom 16y ago
He defends Goldman and says this about JPMorgan: But the world would be better off if JPMorgan didn't run a gambling casino alongside a legitimate business. I take my hat off to Dimon, but I'd take away his derivative book in a second. Why is it a casino in JPMorgan's case, but not Goldman's? Is there a difference between the two, other than that the speaker is invested in one and not the other? I ask because Buffett and Munger have a mammoth interest in this subject (I was going to say "conflict of interest", but perhaps there's no conflict) and in the public statements I've seen neither has even mentioned that, let alone credibly addressed it. I find that disappointing. Like a lot of people, I've long looked to them as examples of business leaders who care about good beyond their personal profit and whose statements could therefore be trusted more than usual. But everything they've said (that I've seen) about the financial crisis is easily explained with reference to one principle, without Occam even breaking a sweat.
- tome 16y ago
  Equally they could have chosen to invest in GS ahead of JPM because of this view about one being a casino and the other not. However, this doesn't answer your original point: what is it about JPM that makes it a casino that doesn't apply to GS? I'd like to know the answer too. Good question.
- metaprinter 16y ago
  The distinction comes from the fact that Goldman Sachs is an Investment Bank so there is inherent risks they engage in. JPMorgan is (mostly), a Deposit Bank, a place where clients store their money - there should be little risk in that.
- misterbwong 16y ago
  I took his comments differently; it seems like he's talking more along the lines of Glass-Steagall. I suspect that Munger doesn't have a problem with the casino (trading firm) itself but the fact that it is running alongside a traditional bank. The problem is, many people see JPM as a bank, not a trading firm, and mistakenly treat is as a bank when, in fact, it's taking more risks than a bank traditionally would.
- 16y ago
mojuba 16y ago
> We were on the edge of something that could have taken civilization as we know it to the edge of ruin. Banks alone can't take civilization down because they don't produce wealth. As long as there are factories, services, knowledgeable, skilled people doing useful things, the civilization will stand OK with or without the rotten banking system. Failing banks, on the other hand, might have taken down Berkshire Hathaway, I suppose, but that's not the entire civilization. > Very high IQ people can be completely useless ... in the eyes of very low IQ people. > I see no reason to think Goldman misbehaved in some horrible fashion. Everyone was doing it, and it's only natural to increase your moneymaking activities when you can do so legally. Should I really comment on this nonsense? Goldman was doing what everyone was doing without much thinking about the consequences, and they didn't misbehave? Actually he responds to himself a bit later: > You have to be able to keep your head on when everyone else is losing theirs.
- jrockway 16y ago
  > Very high IQ people can be completely useless ... in the eyes of very low IQ people. I agree with you here. The problem was not the mathematical models that were developed, the problem was that people don't know what risk means. Traders have the "it won't happen to me" attitude, so they go for the big gains. When everyone in the industry goes for the big gains, all paid for with credit from big gains that "will eventually" materialize, the industry has a problem. (An example is credit default swaps. If the bank that wrote you the swap fails, you have taken on more risk than you were expecting. When a bunch of banks fail at once, then all the banks take on additional risk, and also fail.) Anyway, this was all predicted, but the shareholders of financial institutions wanted the gains that necessitated heavy risk-taking. And they reaped what they sowed. You can't blame the quants for this one...
- gvb 16y ago
  > Banks alone can't take civilization down because they don't produce wealth. As long as there are factories, services, knowledgeable, skilled people doing useful things, the civilization will stand OK with or without the rotten banking system. While it is true, banks don't produce wealth, they are the lubrication that keeps the machinery working smoothly. Manufacturing has to buy raw materials, add value, and then sell their product. The time that lies between "buy" and "sell" is tough without banks.
stretchwithme 16y ago
just because someone can make money doesn't mean they know their history, are unbiased, or understand the nature and cause of economic calamity.
patrickgzill 16y ago
Berkshire Hathaway has $9 billion or more in derivatives. http://www.nytimes.com/2010/04/30/business/30views.html http://www.nytimes.com/2010/04/30/business/30views.html Would have been interesting to ask how to determine whether "gambling" is going on or not, given that Goldman, JP Morgan, and BH all have derivatives.

77 points by dchs 16y ago

earlier post about Munger this week on HN: http://news.ycombinator.com/item?id=1331591 http://news.ycombinator.com/item?id=1331591

tome 16y ago

Interesting that he says: "Goldman has the best morality of any of the big banks". Goldman have taken a lot of flak recently. Perhaps it because they were the survivor.

yummyfajitas 16y ago
I think it's more than just surviving and coming out on top. They came out on top because they have an extremely short term focus: buy stuff, package it, flip it, move on. That's their business model and it allowed them to change direction when the crisis it. In contrast, companies with a focus on long term investments were crushed (e.g., WaMu). This goes against the dogma that "those short sighted companies, aiming for profits in the next quarter, now look at them." Therefore, Goldman must have cheated.
- tome 16y ago
  But Munger and Buffett are all about the long term. Why would they then admire Goldman Sachs who you say are obsessed with short term?
  - cynicalkane 16y ago
    Munger and Buffett are long-term investors. They have nothing against short-term positions, so long as those positions aren't confused with investments.
    - eru 16y ago
      Yes. They just do long-term investments in relatively simple businesses, because that's what they do best.
ericb 16y ago
I think Buffett and Munger mean what they say about valuing honesty, but are nonetheless human and therefore prone to rationalization.
jordanb 16y ago
His saying that Goldman was just playing with the rulebook Congress gave them is disingenuous. Goldman's lobbyists wrote the rulebook. The financial industry -- and Goldman in particular -- have been playing congress like a fiddle for decades now. They had the rules that led to the collapse because they wanted those rules, because that would make them the most short-term money.

eru 16y ago

> When Hitler was in his bunker before he shot himself, he said, "This isn't my fault. The German people just don't appreciate me enough." Charlie Munger knows his history. I wouldn't have expected a knowledgeable quote about German history.

tptacek 16y ago
I was struck by the two chemistry references, too.
gruseom 16y ago
It sounds rather like folklore to me, and I can't find the quote after a few minutes of googling.
- kn0thing 16y ago
  Aye, all reports indiciate the only one in the room with him before the suicide was Braun and she didn't walk out of there either. He certainly felt that way, but I don't think I've ever seen any evidence to show that those were his final words. It's a great quote, though.
  - eru 16y ago
    Oh, the story with the bunker is a bit of a metaphor. Hitler ordered scorched earth tactics at the end of the war, ostensibly because this should have made it harder for the allies. But in his ideological point of view, this was because he thought the Germans weren't worth it anymore. See http://www.br-online.de/wissen-bildung/collegeradio/medien/geschichte/nerobefehl/ http://www.br-online.de/wissen-bildung/collegeradio/medien/g... and http://de.wikipedia.org/wiki/Nerobefehl http://de.wikipedia.org/wiki/Nerobefehl and http://www.lwl.org/westfaelische-geschichte/portal/Internet/finde/langDatensatz.php?urlID=602&url_tabelle=tab_websegmente http://www.lwl.org/westfaelische-geschichte/portal/Internet/... Sorry, all of the sources are in German. (But that's German history for you.)
    - gruseom 16y ago

gruseom 16y ago

He defends Goldman and says this about JPMorgan: But the world would be better off if JPMorgan didn't run a gambling casino alongside a legitimate business. I take my hat off to Dimon, but I'd take away his derivative book in a second. Why is it a casino in JPMorgan's case, but not Goldman's? Is there a difference between the two, other than that the speaker is invested in one and not the other? I ask because Buffett and Munger have a mammoth interest in this subject (I was going to say "conflict of interest", but perhaps there's no conflict) and in the public statements I've seen neither has even mentioned that, let alone credibly addressed it. I find that disappointing. Like a lot of people, I've long looked to them as examples of business leaders who care about good beyond their personal profit and whose statements could therefore be trusted more than usual. But everything they've said (that I've seen) about the financial crisis is easily explained with reference to one principle, without Occam even breaking a sweat.

tome 16y ago
Equally they could have chosen to invest in GS ahead of JPM because of this view about one being a casino and the other not. However, this doesn't answer your original point: what is it about JPM that makes it a casino that doesn't apply to GS? I'd like to know the answer too. Good question.
metaprinter 16y ago
The distinction comes from the fact that Goldman Sachs is an Investment Bank so there is inherent risks they engage in. JPMorgan is (mostly), a Deposit Bank, a place where clients store their money - there should be little risk in that.
misterbwong 16y ago
I took his comments differently; it seems like he's talking more along the lines of Glass-Steagall. I suspect that Munger doesn't have a problem with the casino (trading firm) itself but the fact that it is running alongside a traditional bank. The problem is, many people see JPM as a bank, not a trading firm, and mistakenly treat is as a bank when, in fact, it's taking more risks than a bank traditionally would.
16y ago

mojuba 16y ago

> We were on the edge of something that could have taken civilization as we know it to the edge of ruin. Banks alone can't take civilization down because they don't produce wealth. As long as there are factories, services, knowledgeable, skilled people doing useful things, the civilization will stand OK with or without the rotten banking system. Failing banks, on the other hand, might have taken down Berkshire Hathaway, I suppose, but that's not the entire civilization. > Very high IQ people can be completely useless ... in the eyes of very low IQ people. > I see no reason to think Goldman misbehaved in some horrible fashion. Everyone was doing it, and it's only natural to increase your moneymaking activities when you can do so legally. Should I really comment on this nonsense? Goldman was doing what everyone was doing without much thinking about the consequences, and they didn't misbehave? Actually he responds to himself a bit later: > You have to be able to keep your head on when everyone else is losing theirs.

jrockway 16y ago
> Very high IQ people can be completely useless ... in the eyes of very low IQ people. I agree with you here. The problem was not the mathematical models that were developed, the problem was that people don't know what risk means. Traders have the "it won't happen to me" attitude, so they go for the big gains. When everyone in the industry goes for the big gains, all paid for with credit from big gains that "will eventually" materialize, the industry has a problem. (An example is credit default swaps. If the bank that wrote you the swap fails, you have taken on more risk than you were expecting. When a bunch of banks fail at once, then all the banks take on additional risk, and also fail.) Anyway, this was all predicted, but the shareholders of financial institutions wanted the gains that necessitated heavy risk-taking. And they reaped what they sowed. You can't blame the quants for this one...
gvb 16y ago
> Banks alone can't take civilization down because they don't produce wealth. As long as there are factories, services, knowledgeable, skilled people doing useful things, the civilization will stand OK with or without the rotten banking system. While it is true, banks don't produce wealth, they are the lubrication that keeps the machinery working smoothly. Manufacturing has to buy raw materials, add value, and then sell their product. The time that lies between "buy" and "sell" is tough without banks.

stretchwithme 16y ago

just because someone can make money doesn't mean they know their history, are unbiased, or understand the nature and cause of economic calamity.

patrickgzill 16y ago

Berkshire Hathaway has $9 billion or more in derivatives. http://www.nytimes.com/2010/04/30/business/30views.html http://www.nytimes.com/2010/04/30/business/30views.html Would have been interesting to ask how to determine whether "gambling" is going on or not, given that Goldman, JP Morgan, and BH all have derivatives.