8 ms·
US banking crisis: Warren Buffett says bosses should face ‘punishment’
- soperj 4y agoHe's probably their biggest individual investor. I think he could make it happen if he really wanted to.
- bagacrap 4y agoThey mostly don't invest in banks.
- somsak2 4y agoI mean, they own a huge portion of BofA. It's their second biggest holding by value https://hedgefollow.com/funds/Berkshire+Hathaway https://hedgefollow.com/funds/Berkshire+Hathaway
- skybrian 4y agoWell, sure, but that's 11% and the non-bank investments add up to a lot more. (Particularly if you include wholly-owned businesses.) Also, BofA isn't one of the banks in trouble. As far as we know.
- throwawayhdbck 4y agoUsing a throwaway b/c I have worked on wall st. in the past and may do so again in the future. Bank of America is the most likely bank of the big 4 US banks to explode from all this. They are sitting on 113.5 billion (yes with a b) in losses in the hold to maturity account. See page 110 of their most recent 10-K linked below. At this point the whole hold to maturity thing seems more and more like a tobashi, and we should just do what Europe does, mark everything to market, and force the banks to raise more capital with CoCos or something similar. Also note that all the other big 3 banks stock price popped after earnings, but not BoA. Second most likely of the big 4 is Wells Fargo, but that is due to commercial real estate exposure, which will take a couple more years to play out. https://investor.bankofamerica.com/regulatory-and-other-filings/annual-reports/content/0000070858-23-000092/0000070858-23-000092.pdf https://investor.bankofamerica.com/regulatory-and-other-fili... https://en.wikipedia.org/wiki/Tobashi_scheme https://en.wikipedia.org/wiki/Tobashi_scheme
- bagacrap 4y agoThe only thing that could cause this to become a problem is if they're forced to sell which only happens during a bank run. The government explicitly protects these large banks from runs. Thus I think your fear mongering is unwarranted. And while the tone of your comment is conspiratorial, as if no one else has noticed the htm losses, the stock is not valued at a level that indicates much risk of failure. So wall street has collectively spoken and the consensus is that bofa profits may be challenged but that there is little risk of receivership or anything like that. I swear, the negative nancies on the internet never seem to get tired of finding new reasons the sky is falling.
- throwawayhdbck 4y agoIn fact the movement of their stock price has shown that many others have noticed the hold to market losses, so there is no hidden conspiracy here. However, I do object to the notion that the government is explicitly protecting large banks from runs. Unless your arguing to big to fail means depositors are prevented from withdrawing funds into e.g. money market accounts[0] somehow? I would posit that the government is in effect inducing the loss of deposits from the banking system by offering higher interest rates on overnight reverse repos and Tbills than banks which are sitting on low yielding long term assets are able to match. My argument here is that by forcing mark to market accounting across the board, banks would have to recognize these losses earlier and we wouldn't need to socialize the losses as frequently as we are have been in the past few months. Furthermore, while you're free to argue that I am a "negative nanc[y]" who believes "the sky is falling", the words "more likely" are doing a good bit of work in my earlier comment. If you really want to argue that BoA and Wells balance sheets are honky dory[1], I happy to hear your analysis, but I can do without the name calling. 0: https://www.bloomberg.com/news/articles/2023-03-31/why-us-bank-deposits-are-moving-to-money-market-funds https://www.bloomberg.com/news/articles/2023-03-31/why-us-ba... 1: https://www.americanbanker.com/list/20-banks-and-thrifts-with-the-largest-mortgage-backed-securities-portfolios https://www.americanbanker.com/list/20-banks-and-thrifts-wit...
- bagacrap 3y ago
- bagacrap 4y agoBuffet explained why that is, while talking about how they sold all other bank shares over the last six months. That is actually the scariest part of this --- if the fear around small banks were unfounded, Buffet would be snapping them up.
- WhereIsTheTruth 4y ago- please remove my comment -
- calgarymicro 4y agoIn what way? Did he have any sort of leadership role at SVB, Signature, or First Republic?
- deleted 4y ago[deleted]
- SoftTalker 4y ago> Charlie Munger, the Berkshire Hathaway vice-chairman and Buffett’s right-hand man, echoed his concerns, telling the meeting: “I don’t think having a bunch of bankers, all of whom are trying to get rich, leads to good things. I think bankers should be more like an engineer, avoiding trouble rather than trying to get rich … It’s a contradiction in values.” It's a good comparison. Engineers can be personally liable if they are negligent in their jobs. Why not bankers?
- markus_zhang 4y agoBecause we are living in a financial capitalism?
- candiddevmike 4y agoWhy stop at bankers, lets extend this to all sorts of job titles that should be held liable for their actions (or the actions of their subordinates).
- ekianjo 4y agoHow about politicians?
- s1artibartfast 4y agoHow about voters, and now we come full circle
- Lev1a 3y agoProblem with that is, politicians promise all kinds of things for their election campaigns, then do whatever TF they want anyway once they're elected and sitting pretty effectively untouchable by the peasantry that elected them, getting rich and fat for a few years before "retiring" to a cushy board position of some company they "incidentally" helped during their political "career". Politicians are mostly professional parasites and most political systems seem to attract, apart from the odd once-in-a-while genuine idealist, exactly that type of people.
- simple-thoughts 4y ago[flagged]
- hackerlight 4y agoExamples?
- owlninja 4y agoI've never read more than surface level about Buffet, would like to see the examples as well.
- phkahler 4y agoBuffet has advocated for changes to the law that would benefit society at his expense. But he will continue using the rules to his advantage until they change. Maybe some would call that dishonest? I know some say it's hypocrisy. I think it's admirable but practical.
- dgfitz 4y agoGood example of: don't hate the player hate the game. When the person winning advocates for rules that make it harder for them to win, how can anyone get upset?
- phkahler 3y ago>> When the person winning advocates for rules that make it harder for them to win, how can anyone get upset? The funny thing is a lot of players act like that kind of change is going to affect their status as winner, as if it's a competitive disadvantage when in reality it affects all players. If the wealth scale looked more like a quadratic instead of an exponential with the same rankings I think they'd all be just fine.
- bee_rider 4y agoA funny thought: if he really wanted to effect change, one option would be to really flaunt his wealth. I mean, his public persona at least is fairly grandfatherly and subdued. Rent out every billboard in D.C. and cover them with distasteful caricatures of elected officials. Or, something better than that, I’m sure with millions of dollars he could hire some top tier trolls.
- monero-xmr 4y ago[flagged]
- artificialLimbs 4y agoHave no idea why you're being downvoted and would like to hear reasoning against this.
- fuckingkike 4y ago[flagged]
- vfclists 4y agoIf he had said so emphatically during the 2008 crisis and the other crises before that this one may not have happened. Talk about shutting the stable door after the horse has bolted three times running. Congress even watered down the laws made after the 2008 crisis to prevent this from happening. Where was he then?
- schemester 4y agoHe and Buffett (among many others) have often talked about these misaligned incentives in the past. He is not sharing any novel insight here.
- Waterluvian 4y agoI think all of that only matters if the topic is changed to “should he be judged for not saying this sooner?” If there’s still horses in the barn, close the doors.
- tiffanyh 4y agoGiven Apple is just inches away from becoming a chartered bank, & Buffet is one of their largest shareholders, I wonder if he wants this punishment also directed towards Apples way too?
- scoofy 4y agoIf Apple's bank defaults on it's customers deposits, I'm pretty sure he would. He's talking about tying the executives compensation to bank outcomes. It's called skin-in-the-game, and it's a value he's espoused for his entire career. The point is that moral-hazard is a big part of why these banks collapse. Executive compensation is tied to the value of the company on the way up, but not on the way down... which obviously creates a dynamic where executives are willing to take massive risks because they're basically playing with their investors' money.
- YeBanKo 4y agoApple’s savings account is with Goldman Sachs, balance is limited to 250k and it is FDIC insured up to 250k. It seems like they are playing it safe: an existing bank with FDIC limits, but better integrated into UI and Apple ecosystem. It seems irrelevant to banking executives’ fuck ups.
- scoofy 4y agoWoah... This is an extremely naive view of "banking safety." FDIC limits provide absolutely zero protections for bank investors. Buffett isn't worried about the customers, he's worried about these investors (himself). Executives can still trivially crash a bank, bankrupting investors, by putting their own earnings targets above what are long-run, safe strategies. This is the principal-agent problem: https://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem https://en.wikipedia.org/wiki/Principal%E2%80%93agent_proble...
- YeBanKo 4y agoHe invested in Apple, not Goldman Sachs. If the latter defaults on deposits, it a damage to reputation damage, sure. But again, cap on balance and FDIC insurance should ensure that customers would get their money back and it probably would not even affect other services.
- GeekyBear 4y agoI imagine that if you were to automatically claw back all the bonuses previously paid upon a bank failure, the people running banks would take risks much more seriously
- alejohausner 4y agoBring back Glass-Stiegel. Bankers are like college students on Spring Break, going wild unless the police come in and break up the party. Banking needs to be boring and only slightly profitable, and strictly policed. As for whether bank CEOs should suffer, well, that's the whole point of having a limited liability corporation: to isolate the company's owners from the legal consequences of their misdeeds.
- hnarn 4y ago> that's the whole point of having a limited liability corporation If your argument is that “there’s nothing we can do about this without completely abolishing LLCs” then that strikes me as somewhat absurd. The limited liability privilege that exists today does not in any way make you immune from prosecution if your actions are criminal. Sam Bankman-Fried is one obvious example. Whether CEOs should “suffer” or not depends entirely on whether they have broken the law, not whether they are leading an LLC. It’s called “limited” liability for a reason.
- deleted 4y ago[deleted]
- skybrian 4y agoIf you want to read more about messed-up incentives, Patrick McKenzie wrote a long article about this [1]: > Suppose you’re a salesman and you’ve identified that the deposit franchise is a natural hedge. Bracket the question of whether you can convince the decisionmakers for the deposit franchise to do business with you. Who in the economy most needs an interest rate hedge? Who could you sell that to? > I claim that it is the mortgage industrial complex, and if you want me to be more specific, it is the government-sponsored entities (Fannie Mae, Freddie Mac, etc). They [enable] the housing market operating in the U.S. by providing securitization infrastructure which, as a side effect, backstops credit risk in conforming mortgages with the full faith and credit of the U.S. government. Agency mortgage backed securities (MBS) are the second largest dollar-denominated fixed income category in the world. They are much larger than minor players like “all corporate bonds combined.” [...] > Now, if you cast your memory back to the high-quality assets of certain recently failed banks which suffered large mark-to-market impairments, do you remember their constitution? They were largely a mix of Treasuries and, hmm, wait a minute, a much larger amount of agency MBS. > SVB, ~$80 billion in MBS. Signature Bank, ~$20 billion. First Republic, only about ~$10 billion. > These portfolios increased in size materially during a period of low interest rates, backing up the truck on interest rate risk effectively, and then had a foreseeable outcome (billions of dollars in losses) when interest rates rose. [...] > I express certainty that there were formal incentive systems which encoded this recommendation. For example, one of many ways by which we regulate banks is by capital requirements. Different assets require different amounts of capital to carry them on the books, in a process called “risk weighting.” Since banks will optimize for return on capital, adjusting risk weights is a way to substantially guide their behavior via shaping incentives without directly mandating one’s preferred outcome. [...] > It was not an accident that banks loaded up on MBS. We wanted them to. We told them to. (By "we" I assume he means bank regulators.) > [...] We didn’t expect the rate hikes to blow up a large chunk of the U.S. banking sector. We knew they would cause losses, to banks and all other holders of financial assets, but modeled them as survivable and more palatable for society than continuing inflation was. We appear to continue to believe that, at least to the extent we believe we can have our cake and eat it too. So I'm wondering what the implications are of this. Banks taking interest rate risk is traditional. Mortgage-backed securities are a diversified version of that, which lowers most risks (or at least, we assume so after 2008) but not interest rate risk. If the implication is that banks shouldn't fund Fannie Mae / Mac as much as they did, who should? [1] https://www.bitsaboutmoney.com/archive/deposit-franchises-as-natural-hedges/ https://www.bitsaboutmoney.com/archive/deposit-franchises-as...
- jdkee 4y agoHow many bankers went to jail from the 2008 financial crisis?
- 0xy 4y agoBanks were forced, basically at gunpoint, to lend to extremely high-risk borrowers (most of the minority communities) in poor areas by the federal government. The Community Reinvestment Act, and other strong-arming laws, loaded mortgage securities with sub-prime debt bombs -- thanks to the government. Banks were responding to carrots and sticks from the government. It's no surprise, since the line between banks and government is extremely blurry. Government capitalizes, incentivizes and strictly controls bank operations. Bankers were the fall guys for government pressure to give unaffordable homes to minority groups.
- YeBanKo 4y agoCan you share more info / links on this take? In this [1] conclusion by the federal reserve it assigns little weight to its contribution to the crisis. I think that the government would be reluctant to blame itself rather than banks, so valid criticism can come from the outside.
- GeekyBear 4y ago> Banks were forced, basically at gunpoint, to lend to extremely high-risk borrowers Are these the same banks that were choosing to issue loans to people with no job and no assets? >A NINJA (no income, no job, and no assets) loan is a term describing a loan extended to a borrower who may have no ability to repay the loan. https://www.investopedia.com/terms/n/ninja-loan.asp https://www.investopedia.com/terms/n/ninja-loan.asp Banks were making loans to anyone, taking their cut, selling those loans to investment banks on Wall Street (who also took a cut) and rolled them into collateralized mortgage backed securities, which were fraudulently marketed as having very little risk and sold to the public. The banks didn't care if the home buyer couldn't pay, because they were just taking a cut and passing off the risk to the public.
- 1101010010 4y agoExternalizing responsibility is the cornerstone of postindustrial capitalism. To deny that privilege would collapse the entire system.
- im3w1l 4y agoMaybe it's not such a great thing to raise interest as quickly as has happened. Like it sounds like sensible raises when you look at percentage points, but if you look instead at the percentages, then it becomes clear that it's a huge and quick shift. If cost of borrowing doubles (I don't know the actual numbers off the top of my head) that's bound to cause some stress. I don't think the full blame lies with greedy banks here.
- acd 4y agoThe issue is that we again and again saves banks through central bank saving them. Central banks intervene in the natural flow of interest rates. Central banks manipulating interest rates have created a housing and startup bubble. Central banks acts as socialism for the rich. Enhancing income differences. Now all is paying for this mess through inflation.
- nazgulnarsil 4y agoWhile our system directly incentivizes deception, please keep in mind that any particular instance of deception is due to the moral failing of the person involved.
- kevviiinn 4y agoMaybe we should just stop incentivizing deception
- schlauerfox 4y agoIf the people's interests were codified as law, there would be a "poverty" punishment for weathly people doing wrong with their power, where you would be limited to living at the federal poverty limit, you can't say it's cruel or unusual punishment because people live this way every day, just because you had privilege doesn't mean it shouldn't be revoked and that extra wealth used to pay back your victims. In this case it wans't criminal, just mismanagement, but there's nothing to say you deserve to be a corporate officer, that should be up for revocation too, getting society to shelter you with corporate fictional liability limitations. The fact this is an absurd 'punishment' for misdeeds or crimes tells a lot about who gets to say what laws are.