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:

Hello Mish,

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 …

Hey Mish

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.

Hello Mish,

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?

April 29, 2010: Barofsky Threatens Criminal Charges in AIG Coverup, Goldman Sachs Abacus Deal, TARP Insider Trading; New York Fed Implicated

April 16, 2010: Rant of the Day: No Ethics, No Fiduciary Responsibility, No Separation of Duty; Complete Ethics Overhaul Needed

March 2, 2010: Geithner’s Illegal Money-Laundering Scheme Exposed; Harry Markopolos Says “Don’t Trust Your Government”

January 31, 2010: 77 Fraud, Money Laundering, Insider Trading, and Tax Evasion Investigations Underway Regarding TARP

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?

June 26, 2009: Bernanke Suffers From Selective Memory Loss; Paulson Calls Bank of America “Turd in the Punchbowl”

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