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Warren Buffett on what went wrong with Lehman and Merrill (2003)
- kul 18y ago"Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." Prescient.
- patrocles 18y agoCompanies and technologies come and go; this year's derivatives are yesteryear's junk bonds. It's not the technology, but rather a failed system of incentives that leaves mis-managed firms to die from exposure.
- nazgulnarsil 18y agoa failed system of incentives isn't just responsible for this, it's responsible for most of societies avoidable ills. if we would just own up to the reality of many situations and start providing proper incentives we could engineer away many problems. what incentive does a cop have to stop crime when he makes more money and is safer busting stop sign violators? what incentive does an elected official have to work for the good of his constituents when he will be out of office soon? what incentive do parents have to raise decent children when retirement is socialized and the government baby sits for them? what incentive do businesses have to compete fairly if the government offers easy outs and chances at monopolization (telcos).
- anamax 18y ago> what incentive does an elected official have to work for the good of his constituents when he will be out of office soon? Surely you're not suggesting longer terms. Congress critters tend to stay in office a very long time.
- byrneseyeview 18y agoIt doesn't matter how long they stay in office, as long as they don't do counterproductive things to stay in office. Most corporations have a "One share, one vote" policy, so people tend to have a long tenure if they're good at what they do. If corporations switched to the democratic "One man, one vote" policy, you'd expect that, prior to any election, they'd just redistribute some money from their big institutions to lots of individual investors.
- run4yourlives 18y agoHow would you suggest democratic reform be completed then, votes depending on income? Surely you can see how utterly disastrous that would be?
- byrneseyeview 18y agoI think democracy is a disaster. Votes based on income would be silly -- what about people who own lots of non income-producing assets, like timber, minerals, early-stage companies, etc? Surely a system of votes based on wealth would be smarter. The governing business should operate like the cereal business, or the software business, or the anything-but-government business: people pay a reasonable price for a particular service, and get what they pay for. You'll notice that a company like Google is somehow able to make its users happy, even though it doesn't have monopoly power on multiple industries or the ability to print arbitrary amounts of dollars, and yet the government is unprofitable even with these advantages. Just tell me how you'd convince Larry and Sergei (and their shareholders) to turn Google into a democracy, and I'll concede that perhaps democracy is a sensible system after all.
- nostrademons 18y agoExcept that government, almost by definition, deals with goods that necessarily involve lots of externalities, involve a public good, or require transaction costs too great for any one entity to pay them. One person's service is another person's annoyance. Think about the highway system. Say that people paid a certain amount for the privilege of driving on the roads. But then what about the folks whose land was taken for the highway? How about the ones who now have to put up with the noise of thousands of automobiles? And then what about positive externalities - the business owners who make more money because cars can get to their businesses, but don't pay to use the roads themselves? Or think about the legal system, including consumer protection agencies. What happens if someone contracts for a service, and then never pays up? Maybe enforcement of service contracts should itself be a service. But then what if that service itself breaches its agreement? Who do you go to? Democracy's a pretty shitty solution, but it exists for a reason. All the alternatives seem to be worse.
- michaelneale 18y ago>what incentive do parents have to raise decent children when retirement is socialized and the government baby sits for them? don't get the connection between children and retirement?
- MaysonL 18y agoIn most of the world, for most of history, old people have been cared for by their children, or not at all.
- michaelneale 18y agoBy its the "baby sitting" bit I don't understand, unless it means the old people?
- iloveyouocean 18y agowhat incentive does a person have to own up to the reality of a situation and engineering away the problems when they can enrich themselves by shirking responsibility and profiting from the problems?
- akkartik 18y ago"if we would just own up to the reality of many situations and start providing proper incentives we could engineer away many problems." Just?! Engineering incentives is the fundamental problem facing humanity. Capitalism is about not money, but aligning the motivations of large groups of people. Can we improve on capitalism? For sure. But don't underestimate the problem you're taking on.
- MaysonL 18y agoIt's informative how badly wrong Greenspan was, compared to Buffett.
- apstuff 18y agoOne is dealing with his own money while the other is not.
- j2d2 18y agoAnother important point: One is much closer to anarcho-capitalism in philosophy than the other. edit: if you downmod me, please explain why. this is a great opportunity to learn.
- corentin 18y agoI suggest you explain your own comment in the first place. Who is closer to anarcho-capitalism in philosophy? The former central banker or the guy who wants to increase taxes?
- run4yourlives 18y agoWhat do you mean? Is that a good thing or a bad thing?
- run4yourlives 18y agoNever were truer words spoken, well done.
- yan 18y agoThe intuition of the man is baffling.