Archive for September 23rd, 2010
Janet Tavakoli on the "Myth of the Immoral Debtor"; An email from a Charlie Munger student; "Business as Usual"
Emails continue to fly in regarding Amazing Arrogance.
I would like to share a few of them including a second email from Janet Tavakoli regarding bankers’ sense of entitlement and “the myth of the immoral debtor”, a term Tavakoli attributes to Elizabeth Warren.
From Janet Tavakoli:
Bankers have an enormous, unjustified, sense of entitlement. These people work for failed institutions, yet they feel they are entitled to bonuses that far exceed those of bankers and investment bankers of one or two decades ago.
Note that Berkshire Hathaway owns a big chunk of Wells Fargo, which bought Wachovia, which in turn bought Golden West, the very seat of a lot of fraudulent lending.
Of course, we bailed out Wells Fargo and relaxed accounting rules, so no one knows the true size of the hole in that balance sheet. Charles Munger’s remarks are all the more bizarre in this context.
Here in Illinois, people were lied to and deceived with phony docs. Among many other frauds, people would show up at a closing for a fixed rate loan and be presented with docs for an option ARM. All sorts of variations occurred.
Lisa Madigan, the Illinois Attorney General was first to file the suit against Countrywide, and beat California by minutes. Countrywide settled for $8+ billion on the combined suits, but that was way too low. Madigan publicly stated: “Borrowers didn’t break the law; Countrywide broke the law.”
Of course, some borrowers committed fraud, overreached, or got in over their heads, and there are certainly cases of irresponsibility. However, the reality of the mortgage lending market is that it was rife with fraud by mortgage lenders–from even before the first huge Ameriquest fraud.
I was on CNBC a few months ago and Kudlow, Santelli, and others shouted me down when I brought up predatory lending. Columbia Journalism Review and others took CNBC to task. Widespread predatory lending is well documented. This isn’t a matter of opinion, it’s a matter of fact.
You’d think Munger had been living under a rock. Yet, he hasn’t been, and I believe he knows better. Buffett knows better, too. Unfortunately, instead of using their positions to tell the truth, they are using their positions to propagate what Elizabeth Warren calls “the myth of the immoral debtor.”
I’m no bleeding heart; I’m all about the cash flows.
Investment banks knew the cash flows from these loans wouldn’t be there, but they went ahead anyway. Thus, they are responsible for widespread securities fraud. To keep it going, they created more complex securitizations and got more people involved to cover up the mounting losses that were coming down the pike. This was all known and knowable in advance.
I didn’t “forsee” anything. I have no psychic ability. I’m not prescient. I am, however, an analyst, and I know my stuff. So did they. It was fraud.
So, just what sort of “civilization” is Munger trying to preserve?
Warren Buffett has made statements that he doesn’t see the purpose of going after people. That’s ridiculous.
I am in complete agreement with William K. Black that thorough investigations are long overdue. The crimes aren’t in doubt, but one has to go through the arduous task of collecting evidence even though delays have made the trail cold. That was deliberate.
University Student Chime In
Here is Email from a University of Michigan student who heard the speech in person.
Alex writes …
I am a University of Michigan student and I was present for Charlie Munger’s talk on campus. You probably wouldn’t have been able to sit through the whole thing without screaming obscenities. There was question asked about gold and Charlie said he would never own it. There was also a question about derivatives and Charlie insulted that person as well. Correct me if I’m wrong, but didn’t Berkshire purchase a large quantity of silver below $5? Didn’t Berkshire get involved in the derivatives market?
Charlie Munger Student Chimes In
Here is an Email from a Charlie Munger student and long time shareholder of Berkshire Hathaway.
As a regular reader of your column, long time shareholder of Berkshire Hathaway, and Charlie Munger student, I was saddened to read Munger’s remarks. While I am never surprised by his hubris – attend a Wesco shareholder meeting and you will see how the man holds court – I am shocked that he would suggest that those who did not receive bailout money to suck it up.
While I knew that Buffett was a hypocrite, I never expected it from Munger who states that he lived on principles. I sold all my Berkshire shares today.
Keep up the great work, you are one of the few sound voices left out there.
Bring Out The Criminal Indictments
Pray tell, where is the action on this list?
January 28, 2010: Secret Deals Involving No One; AIG Coverup Conspiracy Unravels
January 26, 2010: Questions Geithner Cannot Escape
January 07, 2010: Time To Indict Geithner For Securities Fraud
October 20, 2009: Bernanke Guilty of Coercion and Market Manipulation
July 17, 2009: Paulson Admits Coercion; Where are the Indictments?
April 24, 2009: Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis
Don’t hold your breath waiting for any of those crooks to be prosecuted.
They are all considered saviors by the president, by Wall Street executives, by the largest banks, by the likes of Warren Buffett and Charles Munger, and all the other ingrates bailed out by the Fed and Congress.
Read the rest at: http://globaleconomicanalysis.blogspot.com
I look around me and I see an Empire in Decline.
The US economy is clearly in a depression… not a recession, not a recovery, but a DEPRESSION. More than 40 million Americans (12%) are on Food stamps. Nearly one in five of us are unemployed of underemployed. Folks go to Wal-Mart at 11PM waiting for their government checks to clear at midnight so they can buy baby formula, milk and other necessities.
Three out of every five Americans are overweight. One in five are obese. Indeed, there are only two areas (one state, Colorado, and Washington DC) where obesity rates are under 20%.
Nearly three in four of us don’t get enough sleep. Almost one third of us report having trouble falling asleep EVERY night. And almost half of us report that day-time sleepiness interferes with normal activities including work.
Half of marriages end in divorce. One out of ten married couples report sleeping alone. The average American watches 28 hours of TV a week (enough to qualify for a part-time job). Two thirds of us eat dinner while watching TV, preferring the fake, sensationalized lives of others to engaging with our own families.
The TV and media are filled with foul, ungodly images of sex, violence, and hate. The most watched shows of the last decade all feature ordinary folks becoming superstars in lottery-esque competitions (American Idol, Survivor, Who Wants to be a Millionaire, etc) OR crime sagas detailing the most sordid and disgusting elements of society (CSI, Law and Order, etc) OR amoral social dramas in which notions of personal responsibility, fidelity, and common decency are unknown (Desperate Housewives, the Bachelorette, etc).
Today, brain dead, vapid human beings who have contributed nothing to society are idolized and followed as though they invented the wheel. We’ve actually got two industries devoted to presenting the illusion and reality of celebrity: Hollywood shows the photo-shopped, CGI-enhanced, scripted version, while the paparazzi and weekly glossies reveal the drug-addicted, affair-crazed, family breaking, soul-less emptiness.
Sex or violence are plastered on virtually every flat surface available. Even the check-out lines at the grocery store feature endless images of barely clothed women along with headlines sensationalizing gruesome behavior, right out in the open for children to see. And if the kid can actually read the headlines… God only knows what ideas this stuff is putting into their heads.
Financially, we’re all pretty much bust or going bust (except those on Wall Street).
New home sales in July were a RECORD low. Not record as in for the year, but the lowest since 1963. The talking heads are high fiving because sales improved in August, but failed to note that they were still DOWN 19% from August 2009 levels.
Americans two primary assets for retirement (stocks and their homes) have both been absolute disasters. Home prices are down 30%, stocks haven’t produced gains in over a decade. Every moron on TV talks about the Dow 10,000 like it’s a miracle. But when you adjust the Dow for inflation, (using the BLS’ ridiculous CPI measure) the Dow is SUB-500 in terms of purchasing power.
Our money system is controlled by an elite banking oligarchy fronted by academics who have never run a business, invented anything, or had any interaction with commerce aside from vying for tenure. Our currency is now worth less than 1/20th of what it was a century ago. And we are ALL in debt up to our eyeballs on a personal, corporate, local, state, and federal level.
Heck, even USA TODAY (not exactly the cutting edge in financial research) notes that in order to pay off our current liabilities, every US family would have to pay $31,000 a year… for 75 YEARS!!!
And we’re talking about an economic recovery?
According to David Rosenberg of Gluskin Sheff:
- Wages & salaries are still down 3.7% from the prior peak;
- Corporate profits are still down 20% from the peak;
- Real GDP is still down 1.3% from the peak;
- Industrial production is still down 7.2% from the peak;
- Employment is still down 5.5% from the peak;
- Retail sales are still down 4.5% from the peak;
- Manufacturing orders are still down 22.1% from the peak;
- Manufacturing shipments are still down 12.5% from the peak;
- Exports are still down 9.2% from the peak;
- Housing starts are still down 63.5% from the peak;
- New home sales are still down 68.9% from the peak;
- Existing home sales are still down 41.2% from the peak;
- Non-residential construction is still down 35.7% from the peak.
The American Psychological Association reports that 73% of Americans cite money as a source of significant stress. Personal bankruptcies have fallen 8% month over month from July to August. However, August 2010 bankruptcies are up 6% from August 2009… so much for the recovery.
And yet, despite all of this, assumedly intelligent people write op-ed articles and appear on TV claiming that things are swell in the US, that we’re actually OK and that the recession is over. Some of these people even have advanced degrees or have won international prizes for economics.
Let’s be honest. Forget recessions, forget even Depressions, the US is an empire in decline.
You can literally see it crumbling right in front of you. Just start looking at how people live, eat, and act on a day to day basis. Look at how our Government runs itself, how it manages our affairs, how it spends our tax Dollars. Look at how our justice system works, who it protects and who it punishes.
It’s all out there, right in the open for you to see. You don’t need an expert degree or some kind of advanced education. It’s OBVIOUS to anyone who bothers looking around.
The fact we don’t admit it doesn’t mean it’s not true.
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Resentment, frustration and anger are now ubiquitous features of U.S. culture. This is the consequence of several factors, none of them positive.
“Horn broken, watch for finger.” This bumper sticker perfectly captures the zeitgeist of the nation: the horn is broken, and everyone is giving everyone else the finger.
Why are simmering resentment, frustration and anger now ubiquitous features of U.S. culture? I would posit the following factors:
1. A culture of entitlement: the U.S. is now a culture of takers obsessed with getting their “fair share” of the swag/borrowed money. “We were promised!” (public employees); “I earned it!” (Social Security recipient, though only the first 3-4 years of benefits are drawn from his/her contributions, and everything after that is welfare drawn from the hides of current workers); “healthcare/income security/housing is a right!” (everybody’s got rights, but nobody seems to have any duties or obligations); “it’s for the children/elderly!” (that is, my expense account, million-dollar pension, etc. are nominally protected by the banner of “education” and/or “healthcare”), and so on.
Those with access to “private welfare” such as CEOs are a privileged class; most of us have to elbow our way to the crowded public trough. The truly select feed at the Wall Street trough, which combines private welfare skimmed from shareholders and investors, and Central State welfare issued in unlimited billions via bailouts, Fed purchases of toxic debt, backstops, loan guarantees, etc.
But like the story about the attractive young lady who blushingly agrees to share her favors for $10,000, but balks when the suitor downgrades his offer to a paltry $100 (with the punchline being, “We’ve already established what you’re willing to sell, now we’re just haggling over the price”), the recipient has sacrificed autonomy in accepting the entitlement, regardless of the source or size. This is how complicity to a host of embezzlements, corruptions and exploitations is purchased.
2. A culture of victimhood: Victimhood is rewarded, shouldering ones’ own load and thrift are punished. Like rats in a maze, Americans respond to incentives and disincentives: as a result, everyone is shouting out their claim to victimhood. The cacophony is reminiscent of a classroom of spoiled children all claiming excuses for their odious behavior and poor performance.
3. Unrealistic expectations: nobody wants to do demanding physical labor, so skilled-craft jobs go begging and companies have to train workers. Favored careers include sports heroes, Web entrepreneurs (as long as the work isn’t too arduous and the cashout comes quickly), entertainers, film makers, etc.–all highly desirable and all scarce in the real world.
Offers which don’t meet Americans’ lofty expectations of their market value are rejected with a sniff (and good old American optimism: “something better will come along soon”).
Numerous financial websites offer up fare such as “how many millions do you need to retire comfortably,” as if saving hundreds of thousands of dollars is even an option for the vast majority of wage-earners.
4. Hype, hypocrisy and propaganda dominate the nation’s politics and mainstream media: soaring rhetoric about growth, recovery, the American can-do spirit, the benefits of bailing out the Financial Power Elite, etc. have raised expectations that have repeatedly been dashed by reality.
All these relentlessly glad tidings and admonishments flow from the rentier-cartel Power Elites of the State/Plutocracy partnership, which owns the MSM (mainstream media) and most of the nation’s productive wealth.
Thus we get billionaire Charlie Munger (one of a pair of outstanding hypocrites at his firm) suggesting that “the little people” need to “suck it in and cope,” leaving him and Warren to the task of reaping billions more from ongoing taxpayer bail-outs of firms they bought into with State collusion.
The announcement that the Great Recession is over is simply the latest in an unending line of increasingly meaningless pronouncements transparently designed to persuade the public that everything’s really, really getting much, much better, and their sour mood in the face of this outpouring of “good news” is irrational and, well, downright annoying. Get with the program, people! Everything’s going great! (at least for billionaires who were offered Goldman Sachs shares at the bottom.)
5. It’s somebody else’s fault: you can fill in the perps, but leave the American public/consumer/voter as hapless, helpless victims of nefarious forces.
6. The frustration of addicted debt-serfs: We hate the nation’s political class and the “up yours” service provided by Corporate America, but we are seemingly powerless to rid ourselves of these Overlords and leeches. Voters rail against dysfunctional insiders, yet they re-elect the craven parasite in their own district. They complain about cable TV providers but don’t cancel their service lest their addiction to the smack/coke cocktail of TV be curtailed.
7. The 30-year erosion of the middle class: this chart says it all:
The middle class filled the growing gap between stagnant earnings and steep increases in living costs, healthcare (a.k.a. sickcare), education, and housing with a second income (Mom, aunty, sister and Grandma all entered the workforce en masse) during the 1970s, and then they filled the still-widening gap in the 80s, 90s and 2000s with ever-expanding debt.
The dot-com bubble provided the illusion that permanently rising equities would painlessly fill the gap (pension plans were happy to join in the mass delusion). When that fantasy imploded, it was quickly replaced with the exact same fantasy, only this time based on housing.
Now that the “housing never goes down” fantasy has imploded, the dwindling remains of the once-great middle class are slouching dejectedly through the ruins of the political center (which cannot hold because there is no center, only a State/Plutocracy Elite and a rabble of State dependents defending their fiefdoms), filled with bitter resentments at this undeserved plight–for isn’t this the Greatest Empire the World Has Ever Known?–beset by anxieties about the rough beasts (let us call them austerity, restraint, humility, responsibility, patience, sacrifice and thrift) whose hour has come round at last.
And just to end on a lighter note:
Special bonus quotes drawn from our extensive list at the bottom of the main blog page:
“But we are told that we need not fear; because those in power, being our representatives, will not abuse the powers we put in their hands. I am not well versed in history, but I will submit to your recollection, whether liberty has been destroyed most often by the licentiousness of the people, or by the tyranny of rulers.
I imagine, sir, you will find the balance on the side of tyranny. Happy will you be if you miss the fate of those nations, who, omitting to resist their oppressors, or negligently suffering their liberty to be wrested from them, have groaned under intolerable despotism!
Most of the human race are now in this deplorable condition; and those nations who have gone in search of grandeur, power, and splendor, have also fallen a sacrifice, and been the victims of their own folly. While they acquired those visionary blessings, they lost their freedom.” (Patrick Henry)
“We must believe in luck. For how else can we explain the success of those we don’t like?” (Jean Cocteau)
“Do you know what amazes me more than anything else? The impotence of force to organize anything.” (Napoleon Bonaparte)
“The man who has a garden and a library has everything.” (Cicero, via Lee Bentley)
“During times of universal deceit, telling the truth becomes a revolutionary act.” (George Orwell)
“Everyone thinks of changing the world, but no one thinks of changing himself.” (Leo Tolstoy)