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Warren Buffett explains the credit crisis to Charlie Rose

102 points by mathoda 18y ago

jacobscott 18y ago
Buffet + Rose = win What to people think about Buffet's post-investment media presence? Is he expending trust-capital by pushing for the bailout when he has $X billion dollars freshly invested?
- pchristensen 18y ago
  On the contrary, I think he's banking on the fact that many people are scared but trust his judgment because of his track record. Sure he might profit from the bailout, but he has also put up $8B and counting when everyone is worried about liquidity. He's putting his money where his mouth is.
  - 13ren 18y ago
    As Clinton said on Letterman, all the people that bet against America lost. He's betting on America. (I love that attitude and I'm not even American)
    - APLonDrugs 18y ago
      Or he’s betting that he will get to run the last two rolls of the dice at the game of taking America by monopoly that he is playing, like a 11year old kid, once they have boardwalk and park place along with most of the other important ones, you can’t stop the game without a temper tantrum, maybe in this case one will not be allowed to walk away from the game.
    - michaelneale 18y ago
      So do I (an also am not American). I love the attitude, I have endless admiration for the US of A.
  - dean 18y ago
    He'll profit because he just bought dollar bills for 20 cents (or whatever amount less than a dollar). That's what he does. Like he said "It’s the kind of stuff I love to do. I just don’t have 700 billion. Maybe we could go in it together."
  - APLonDrugs 18y ago
    He also was saved 6.5 billion from the bail out of Fanny/Freddie. He also has made his fortune from insurance, which one might say is like banking, a big benefactor of the ‘game’. Would you buy insurance or food first if prices fall and you are out of work? He would lose in that environment, too granted, (did you notice he switched into food lately right around when he went on a buying spree in one of the safest of fiat currency:-) but the real gain is in the upside of knowing what society will need and having it with less competition:-), it only gets better…. Giving him credit he did offered to buy one percent of the 700 billion, (though not first lost position) or without his friends picking which ones...
swombat 18y ago
Finally a bit of economic analysis that's actually worth upmodding, unlike the "Bankruptcy is the answer" retardation. Thank you for posting this, as off-topic as it might be. I'm quite sure the comments will get overrun by Ron Paul supporters claiming Warrent Buffet has a vested interest in the bailout, all the banks should be liquidated, etc. Before you make that comment, please read this paragraph carefully: Time is of the essence: “I mean, if Pearl Harbor came along, you could have said the planning was wrong by the military ahead of time or maybe the battleships shouldn’t have all been in the harbor and all that kind of thing. … I mean, the job is Pearl Harbor. And you better not spends weeks and weeks and weeks trying to assign blame or deciding on a complete plan for fighting the whole war, you know, and letting a committee decide where the battleships should go and all of that. You better spring into action with the best people you have. … it’s very important that the determination of the US Congress to do what is is needed be made evident this week and by the actions of most of the members.” Blame, putting culprits in prison, figuring out how to stop this from happening again, all this will come. But first you have to stop the economy from free-falling into a depression. Priorities, people. I'm not going to repost all my arguments about this, they're all already in this other thread: http://news.ycombinator.com/item?id=319646 http://news.ycombinator.com/item?id=319646
- yters 18y ago
  Yeah, that's what I've thought. Blaming kind of made sense when things weren't collapsing, helps us fix the system. But now, blame is the least useful thing, and people rejecting the bailout just because it looks like getting rich people off the hook or because they don't want to pay for other people's mistakes is completely ignoring the real issue of economic meltdown. That meltdown will affect everyone no matter how financially responsible they are.
- dhimes 18y ago
  I tend to agree, but the Pearl analogy doesn't quite hold. Suppose, for whatever reason, in WWII the US and Japanese were originally allies, and there were high level Japanese military officials working in the Pentagon. Then it becomes clearer that proceeding incorrectly could cause far more damage than proceeding slowly but cautiously. Unfortunately, the perceived "character" issues that the White House has is working against the US in this time of crisis. The WH is suspected by some of using "emergency" situations to gain power, and some folks are suspicious that they may try to do it again. There are a lot of people for whom the phrase "George Bush has a plan to fix this" doesn't inspire confidence.
Luc 18y ago
Hehe: "And all I can say is beware of geeks, you know, bearing formulas.”
adrianwaj 18y ago
What do Warren Buffet, Paul Graham and Hugh Hefner have in common? Each buys an undervalued asset at its undervalued price, sprinkles it with some fairy dust and then sells it at a premium once the potential has been realized. One does it with stocks and securities, the next with startup founders and their ideas, and the last with women.
- patrickg-zill 18y ago
  In the case of Hefner, I think you are confusing silicone for fairy dust ...
  - adrianwaj 18y ago
    Hef just uses photoshop and his bed. Graham gives everyone a good lunch and some networking support. Buffet just gets the most alert people to brighten up and prod the execs in despair.
- known 18y ago
  aka Capitalism
- 13ren 18y ago
  Except Warren doesn't sprinkle with fairy dust - or sell. He does however buy good businesses at discounts to their true long-term value.
  - adrianwaj 18y ago
    I am no Buffet expert but know he is a value investor and buying distressed assets has been a way for him to obtain value. He likes to keep existing management.
    - 13ren 18y ago
      Yeah, you've got the flavour right.. although... he tends to not buy distressed assets so much as assets that the market thinks are distressed.... a solid business (i.e. non-distressed) is very important to him. Maybe I'm just playing with definitions, but here's an example: American Express was guilty of fraud, and things looked really bad for them, because their business is based on trust - surely their future bleak, thought Wall St. Their stock price tanked (this is just the opinion of the market; it may or may not correspond to reality). But Warren Buffett went down to the supermarket, and observed people: in fact, they still trusted American Express, in the operational sense that they still used it. The fraud didn't affect Amex's business at all. So he put half his wealth (or something like that) into it, and made a killing... by buying a non-distressed asset at a distressed price. And here, price is just another word for opinion. Sorry to go on, I just like talking about it.
patrickg-zill 18y ago
We know now, that the reason AIG was bailed out, is because European banks had $300 Billion or more in credit protection, and that the Euro banks are even more highly leveraged than US, Canadian, and British banks. It was French finance minister Christine Lagarde who personally begged Paulson to keep AIG going. See: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3118994/Financial-Crisis-So-much-for-tirades-against-American-greed.html http://www.telegraph.co.uk/finance/comment/ambroseevans_prit... My personal view is not that bankruptcy is the answer; just that it will be the inevitable result. The only question is whether a few large Wall St. firms will go bankrupt, causing pain to many other financial institutions and governments, or whether America itself will go near-bankrupt as a result of taking the losses on themselves. And no, I don't have a lot of respect for Buffett, ever since he fought the inheritance (death) tax being repealed, which is after all double taxation, and from which his company personally benefits. His insurance companies make billions on pricy insurance sold to small and medium sized business owners who are nearing the end of their life (you buy the insurance so that when you die, the company does not have to be liquidated in order to pay the IRS).
- Retric 18y ago
  What double taxation, if you buy stock at 10$ and it's worth 100$ when you die that gain is never taxed.
  - patrickg-zill 18y ago
    I encourage you to actually know what you are talking about before posting. If I have $1 million in cash when I die, my heirs have to pay taxes on that, even though I paid taxes on it when I originally earned it. You cannot net out the capital gains and just pay tax on that, everything is taxed.
    - jeremytliles 18y ago
      Your heirs didn't earn that money, so they're only paying taxes once. You pay once for earning it, they pay once for "earning" it via your departure from this earth. But presumably if you have lots of money, you've already set up trusts, paid for college, given lifetime gifts, etc. so your heirs are already pretty far ahead of the average person. Seems like a perfectly good way to encourage at least a tiny amount of wealth redistribution in a society where wealth is not very well distributed at all.
dejb 18y ago
> The US government can borrow money very cheaply, and buy mortgages at fear driven low prices, which should allow it to make a profit from the rescue, if it buys at the market price: Is anyone reminded of the concept of doubling down on your bet when they see this? I guess it is strictly correct although I don't like the chances of the goverment buying at market prices though.
dpatru 18y ago
Beware of geeks: Beware of geeks with clever computer models: “I mean they had all these types from Wall Street, you know, and they had advanced degrees, and they look very alert, and they came with these — they came with these things that said gamma and alpha and sigma and all that. And all I can say is beware of geeks, you know, bearing formulas.”
- deleted 18y ago
  [deleted]
  - deleted 18y ago
    [deleted]
- SirWart 18y ago
  As a corollary, beware of geeks who think they know the right course of action for Treasury right now.
- adrianwaj 18y ago
  It's a good quote here by Buffet, amazing one can repost in the thread like that word-for-word and cop 15+ Karma points for it. All the non-Geeks here mod this one up? Using Buffet's analogy, why bother innovating when one can just imitate? On the extreme, the imitators resent the innovators and hate the idiots. The innovators see the imitators as an unfortunate evil.
  - known 18y ago
    Innovators != Inventors
  - run4yourlives 18y ago
    I don't think you're quite understanding what he's saying there. It's just a fancy way of saying the data can be made to support any opinion, so beware of something that has all this data to back it up, but still smells fishy on the surface.
    - 18y ago
netcan 18y ago
SO do all these economy guys not believe in not intervening in economies any more?
- swombat 18y ago
  They've always believed in both, depending on which you ask.
- byrneseyeview 18y ago
  Warren Buffett has been in favor of higher taxes and stricter regulation for about four decades. So I guess "these economy guys" isn't a very useful classification, at all.
comatose_kid 18y ago
"And so you get what I call the natural progression, the three I’s: the innovators, the imitators, and the idiots."
- 13ren 18y ago
  Everybody just kind of goes along. And you look kind of silly if you disagree. It definitely is not easy to resist conformity, Buffett claims that his ability to do this is one of the main reasons for success (he's a contrarian)
spoiledtechie 18y ago
Thanks for this post. I am glad to see that we aren't going into bankruptcy any time soon. Warren Buffett I feel knows money better than the teacher stuck up in a office somewhere.
qqq 18y ago
he says that only the govt can buy lots of stuff right now, private companies all need to back off. but we saw an article here yesterday saying he just invested 8 billion in GE and something else. contradiction?
- DougBTX 18y ago
  Yep, though resolved by his reminder that he doesn't have 800 billion sitting around, and that he's one of the richest guys in the world.
kul 18y ago
I’m irritated by this knee-jerk anti-bailout reaction (”$700bn to the fat cats!”). Check this diagram from the BBC (http://newsimg.bbc.co.uk/media/images/45062000/gif/_45062415_wall_st_bail_plan_466_2.gif http://newsimg.bbc.co.uk/media/images/45062000/gif/_45062415...) There is no $700bn going into some Wall Street bankers pockets. First off, $450bn of this bailout money is conditional. Also, see that arrow pointing from the Banks to the Gov’t? That’s a stake in the banks being given to the taxpayers. So you’re not just losing money, you’re gaining an asset, and the chances are, at a very good price. There’s a chance the US Gov’t could end up making a profit out of the situation when the housing market recovers, which it inevitably will. This credit bust is definitely a mess, but this doesn’t mean there won’t be any credit in the future. We need to think 5-10 years into the future. Things will recover, they always do. The closest thing to this I’ve ever studied were the currency crises that happened in Asia in 1998 (indeed they were my savior in my final international economics exam). The big lesson I learned was that self-fulfilling prophecies can occur in the markets. If everyone loses faith in a currency, then it will crash, even if nothing has fundamentally changed. The same thing can happen with banks. If we think some are going to fail, sell its shares, then we can help make it fail. So to counter-act that you need some pretty aggressive action, and even if it isn’t perfect, people are misunderstanding that doing nothing could be much, much worse. If this credit problem is not solved and confidence restored, then it is easy for the effects to spill over to the main economy. The worst would be for otherwise healthy firms to stop receiving credit, be forced to lay people off in a downturn, add to unemployment, and then just make the whole macro condition worse for everyone. Credit plays a vital role in smoothing out consumption and investment cycles - so the banks that facilitate this and are otherwise healthy need to be backed up. That's started happening in the UK (http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3123736/Banks-turn-the-screw-on-businesses.html http://www.telegraph.co.uk/finance/financetopics/financialcr...). If unemployment rises sharply, then things will get really bad.
njharman 18y ago
"People should always know better. I mean people people don’t get they don’t get smarter about things that get as basic as greed and you can’t stand to see your neighbor getting rich. You know you’re smarter than he is, and he’s doing these things, you know, and he’s getting rich, and your spouse is getting unhappy with you because you aren’t doing pretty soon you start doing it. And so you get what I call the natural progression, the three I’s: the innovators, the imitators, and the idiots. And that’s what happens. Everybody just kind of goes along. And you look kind of silly if you disagree." That is the "free market" at work. And why I shake my head in disbelief at people who think/expect the free market solves problems.
ericwaller 18y ago
He seems to be making the argument: 1. The US government can borrow money at extremely low rates 2. Purchasing mortgage-based securities at the current market price will eventually make you a lot of money 3. So.. the government should leverage up and buy 700 Billion worth This sounds awfully similar to the advice given to people buying homes during the real estate bubble. "Buy the biggest house you can get a loan for.. it'll be worth more tomorrow anyway, so you can just sell it and make money!"

102 points by mathoda 18y ago

Buffet + Rose = win What to people think about Buffet's post-investment media presence? Is he expending trust-capital by pushing for the bailout when he has $X billion dollars freshly invested?

pchristensen 18y ago
On the contrary, I think he's banking on the fact that many people are scared but trust his judgment because of his track record. Sure he might profit from the bailout, but he has also put up $8B and counting when everyone is worried about liquidity. He's putting his money where his mouth is.
- 13ren 18y ago
  As Clinton said on Letterman, all the people that bet against America lost. He's betting on America. (I love that attitude and I'm not even American)
  - APLonDrugs 18y ago
    Or he’s betting that he will get to run the last two rolls of the dice at the game of taking America by monopoly that he is playing, like a 11year old kid, once they have boardwalk and park place along with most of the other important ones, you can’t stop the game without a temper tantrum, maybe in this case one will not be allowed to walk away from the game.
  - michaelneale 18y ago
    So do I (an also am not American). I love the attitude, I have endless admiration for the US of A.
- dean 18y ago
  He'll profit because he just bought dollar bills for 20 cents (or whatever amount less than a dollar). That's what he does. Like he said "It’s the kind of stuff I love to do. I just don’t have 700 billion. Maybe we could go in it together."
- APLonDrugs 18y ago
  He also was saved 6.5 billion from the bail out of Fanny/Freddie. He also has made his fortune from insurance, which one might say is like banking, a big benefactor of the ‘game’. Would you buy insurance or food first if prices fall and you are out of work? He would lose in that environment, too granted, (did you notice he switched into food lately right around when he went on a buying spree in one of the safest of fiat currency:-) but the real gain is in the upside of knowing what society will need and having it with less competition:-), it only gets better…. Giving him credit he did offered to buy one percent of the 700 billion, (though not first lost position) or without his friends picking which ones...

swombat 18y ago

Finally a bit of economic analysis that's actually worth upmodding, unlike the "Bankruptcy is the answer" retardation. Thank you for posting this, as off-topic as it might be. I'm quite sure the comments will get overrun by Ron Paul supporters claiming Warrent Buffet has a vested interest in the bailout, all the banks should be liquidated, etc. Before you make that comment, please read this paragraph carefully: Time is of the essence: “I mean, if Pearl Harbor came along, you could have said the planning was wrong by the military ahead of time or maybe the battleships shouldn’t have all been in the harbor and all that kind of thing. … I mean, the job is Pearl Harbor. And you better not spends weeks and weeks and weeks trying to assign blame or deciding on a complete plan for fighting the whole war, you know, and letting a committee decide where the battleships should go and all of that. You better spring into action with the best people you have. … it’s very important that the determination of the US Congress to do what is is needed be made evident this week and by the actions of most of the members.” Blame, putting culprits in prison, figuring out how to stop this from happening again, all this will come. But first you have to stop the economy from free-falling into a depression. Priorities, people. I'm not going to repost all my arguments about this, they're all already in this other thread: http://news.ycombinator.com/item?id=319646 http://news.ycombinator.com/item?id=319646

yters 18y ago
Yeah, that's what I've thought. Blaming kind of made sense when things weren't collapsing, helps us fix the system. But now, blame is the least useful thing, and people rejecting the bailout just because it looks like getting rich people off the hook or because they don't want to pay for other people's mistakes is completely ignoring the real issue of economic meltdown. That meltdown will affect everyone no matter how financially responsible they are.
dhimes 18y ago
I tend to agree, but the Pearl analogy doesn't quite hold. Suppose, for whatever reason, in WWII the US and Japanese were originally allies, and there were high level Japanese military officials working in the Pentagon. Then it becomes clearer that proceeding incorrectly could cause far more damage than proceeding slowly but cautiously. Unfortunately, the perceived "character" issues that the White House has is working against the US in this time of crisis. The WH is suspected by some of using "emergency" situations to gain power, and some folks are suspicious that they may try to do it again. There are a lot of people for whom the phrase "George Bush has a plan to fix this" doesn't inspire confidence.

Luc 18y ago

Hehe: "And all I can say is beware of geeks, you know, bearing formulas.”

adrianwaj 18y ago

What do Warren Buffet, Paul Graham and Hugh Hefner have in common? Each buys an undervalued asset at its undervalued price, sprinkles it with some fairy dust and then sells it at a premium once the potential has been realized. One does it with stocks and securities, the next with startup founders and their ideas, and the last with women.

patrickg-zill 18y ago
In the case of Hefner, I think you are confusing silicone for fairy dust ...
- adrianwaj 18y ago
  Hef just uses photoshop and his bed. Graham gives everyone a good lunch and some networking support. Buffet just gets the most alert people to brighten up and prod the execs in despair.
known 18y ago
aka Capitalism
13ren 18y ago
Except Warren doesn't sprinkle with fairy dust - or sell. He does however buy good businesses at discounts to their true long-term value.
- adrianwaj 18y ago
  I am no Buffet expert but know he is a value investor and buying distressed assets has been a way for him to obtain value. He likes to keep existing management.
  - 13ren 18y ago
    Yeah, you've got the flavour right.. although... he tends to not buy distressed assets so much as assets that the market thinks are distressed.... a solid business (i.e. non-distressed) is very important to him. Maybe I'm just playing with definitions, but here's an example: American Express was guilty of fraud, and things looked really bad for them, because their business is based on trust - surely their future bleak, thought Wall St. Their stock price tanked (this is just the opinion of the market; it may or may not correspond to reality). But Warren Buffett went down to the supermarket, and observed people: in fact, they still trusted American Express, in the operational sense that they still used it. The fraud didn't affect Amex's business at all. So he put half his wealth (or something like that) into it, and made a killing... by buying a non-distressed asset at a distressed price. And here, price is just another word for opinion. Sorry to go on, I just like talking about it.

patrickg-zill 18y ago

We know now, that the reason AIG was bailed out, is because European banks had $300 Billion or more in credit protection, and that the Euro banks are even more highly leveraged than US, Canadian, and British banks. It was French finance minister Christine Lagarde who personally begged Paulson to keep AIG going. See: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3118994/Financial-Crisis-So-much-for-tirades-against-American-greed.html http://www.telegraph.co.uk/finance/comment/ambroseevans_prit... My personal view is not that bankruptcy is the answer; just that it will be the inevitable result. The only question is whether a few large Wall St. firms will go bankrupt, causing pain to many other financial institutions and governments, or whether America itself will go near-bankrupt as a result of taking the losses on themselves. And no, I don't have a lot of respect for Buffett, ever since he fought the inheritance (death) tax being repealed, which is after all double taxation, and from which his company personally benefits. His insurance companies make billions on pricy insurance sold to small and medium sized business owners who are nearing the end of their life (you buy the insurance so that when you die, the company does not have to be liquidated in order to pay the IRS).

Retric 18y ago
What double taxation, if you buy stock at 10$ and it's worth 100$ when you die that gain is never taxed.
- patrickg-zill 18y ago
  I encourage you to actually know what you are talking about before posting. If I have $1 million in cash when I die, my heirs have to pay taxes on that, even though I paid taxes on it when I originally earned it. You cannot net out the capital gains and just pay tax on that, everything is taxed.
  - jeremytliles 18y ago
    Your heirs didn't earn that money, so they're only paying taxes once. You pay once for earning it, they pay once for "earning" it via your departure from this earth. But presumably if you have lots of money, you've already set up trusts, paid for college, given lifetime gifts, etc. so your heirs are already pretty far ahead of the average person. Seems like a perfectly good way to encourage at least a tiny amount of wealth redistribution in a society where wealth is not very well distributed at all.

dejb 18y ago

> The US government can borrow money very cheaply, and buy mortgages at fear driven low prices, which should allow it to make a profit from the rescue, if it buys at the market price: Is anyone reminded of the concept of doubling down on your bet when they see this? I guess it is strictly correct although I don't like the chances of the goverment buying at market prices though.

dpatru 18y ago

Beware of geeks: Beware of geeks with clever computer models: “I mean they had all these types from Wall Street, you know, and they had advanced degrees, and they look very alert, and they came with these — they came with these things that said gamma and alpha and sigma and all that. And all I can say is beware of geeks, you know, bearing formulas.”

deleted 18y ago
[deleted]
- deleted 18y ago
  [deleted]
SirWart 18y ago
As a corollary, beware of geeks who think they know the right course of action for Treasury right now.
adrianwaj 18y ago
It's a good quote here by Buffet, amazing one can repost in the thread like that word-for-word and cop 15+ Karma points for it. All the non-Geeks here mod this one up? Using Buffet's analogy, why bother innovating when one can just imitate? On the extreme, the imitators resent the innovators and hate the idiots. The innovators see the imitators as an unfortunate evil.
- known 18y ago
  Innovators != Inventors
- run4yourlives 18y ago
  I don't think you're quite understanding what he's saying there. It's just a fancy way of saying the data can be made to support any opinion, so beware of something that has all this data to back it up, but still smells fishy on the surface.
  - 18y ago

netcan 18y ago

SO do all these economy guys not believe in not intervening in economies any more?

swombat 18y ago
They've always believed in both, depending on which you ask.
byrneseyeview 18y ago
Warren Buffett has been in favor of higher taxes and stricter regulation for about four decades. So I guess "these economy guys" isn't a very useful classification, at all.

comatose_kid 18y ago

"And so you get what I call the natural progression, the three I’s: the innovators, the imitators, and the idiots."

13ren 18y ago
Everybody just kind of goes along. And you look kind of silly if you disagree. It definitely is not easy to resist conformity, Buffett claims that his ability to do this is one of the main reasons for success (he's a contrarian)

spoiledtechie 18y ago

Thanks for this post. I am glad to see that we aren't going into bankruptcy any time soon. Warren Buffett I feel knows money better than the teacher stuck up in a office somewhere.

qqq 18y ago

he says that only the govt can buy lots of stuff right now, private companies all need to back off. but we saw an article here yesterday saying he just invested 8 billion in GE and something else. contradiction?

DougBTX 18y ago
Yep, though resolved by his reminder that he doesn't have 800 billion sitting around, and that he's one of the richest guys in the world.

kul 18y ago

I’m irritated by this knee-jerk anti-bailout reaction (”$700bn to the fat cats!”). Check this diagram from the BBC (http://newsimg.bbc.co.uk/media/images/45062000/gif/_45062415_wall_st_bail_plan_466_2.gif http://newsimg.bbc.co.uk/media/images/45062000/gif/_45062415...) There is no $700bn going into some Wall Street bankers pockets. First off, $450bn of this bailout money is conditional. Also, see that arrow pointing from the Banks to the Gov’t? That’s a stake in the banks being given to the taxpayers. So you’re not just losing money, you’re gaining an asset, and the chances are, at a very good price. There’s a chance the US Gov’t could end up making a profit out of the situation when the housing market recovers, which it inevitably will. This credit bust is definitely a mess, but this doesn’t mean there won’t be any credit in the future. We need to think 5-10 years into the future. Things will recover, they always do. The closest thing to this I’ve ever studied were the currency crises that happened in Asia in 1998 (indeed they were my savior in my final international economics exam). The big lesson I learned was that self-fulfilling prophecies can occur in the markets. If everyone loses faith in a currency, then it will crash, even if nothing has fundamentally changed. The same thing can happen with banks. If we think some are going to fail, sell its shares, then we can help make it fail. So to counter-act that you need some pretty aggressive action, and even if it isn’t perfect, people are misunderstanding that doing nothing could be much, much worse. If this credit problem is not solved and confidence restored, then it is easy for the effects to spill over to the main economy. The worst would be for otherwise healthy firms to stop receiving credit, be forced to lay people off in a downturn, add to unemployment, and then just make the whole macro condition worse for everyone. Credit plays a vital role in smoothing out consumption and investment cycles - so the banks that facilitate this and are otherwise healthy need to be backed up. That's started happening in the UK (http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3123736/Banks-turn-the-screw-on-businesses.html http://www.telegraph.co.uk/finance/financetopics/financialcr...). If unemployment rises sharply, then things will get really bad.

njharman 18y ago

"People should always know better. I mean people people don’t get they don’t get smarter about things that get as basic as greed and you can’t stand to see your neighbor getting rich. You know you’re smarter than he is, and he’s doing these things, you know, and he’s getting rich, and your spouse is getting unhappy with you because you aren’t doing pretty soon you start doing it. And so you get what I call the natural progression, the three I’s: the innovators, the imitators, and the idiots. And that’s what happens. Everybody just kind of goes along. And you look kind of silly if you disagree." That is the "free market" at work. And why I shake my head in disbelief at people who think/expect the free market solves problems.

ericwaller 18y ago

He seems to be making the argument: 1. The US government can borrow money at extremely low rates 2. Purchasing mortgage-based securities at the current market price will eventually make you a lot of money 3. So.. the government should leverage up and buy 700 Billion worth This sounds awfully similar to the advice given to people buying homes during the real estate bubble. "Buy the biggest house you can get a loan for.. it'll be worth more tomorrow anyway, so you can just sell it and make money!"