Straight Talk from Warren Buffett

One of the great things about listening to Warren Buffett speak, and I suspect one reason why thousands gather each year in Omaha for his company's annual meeting, is that despite the fact that he is a brilliant man he speaks in plain, logical language that is easy to follow and usually hard to argue with. If you want the truth, without the media spin, and in as few simple words as possible, just ask Buffett.Here are excerpts from a Buffett blurb on latimes.com from Thursday discussing current financial market conditions:

"It's sort of a little poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end," he said.
"I wouldn't quite call it a credit crunch," he said. "Money is available, and it's really quite cheap because of the lowering of rates that has taken place."
He added: "What has happened is a repricing of risk and an unavailability of what I might call 'dumb money,' of which there was plenty around a year ago."

He is so right on this. People in the media keep complaining that "banks aren't lending money anymore" and the Fed has to help boost liquidity. Banks are still lending money, they are just doing so only to people who have good credit (and thus actually deserve to be given loans).

It's funny that people complained that the banks were giving loans to anyone and everyone, and now they are upset because many people can't get loans anymore. You can't have it both ways. The fact that "dumb money" is no longer available is a good thing. Perhaps retail sales drop a few percentage points and loan losses increase a few because of it, but overall our financial system will be less leveraged and healthier as a result.

If you can't put any money down or verify your income, you can't afford to buy a home. I'm glad the banks are finally realizing this. And for those who are credit worthy, the Fed is lowering borrowing rates so the banks can make money on the loans they are willing to extend.

Comments

[Pauly B]

Greed infiltrated the banking system and ruined many parts of our communities. In the suburb next to me we have 600 homes abandoned and the city doesn't know who to contact let alone what to do with the mess. In my neighborhood we have 4 houses abandoned. There was zero regulation from the banking sector and from Wall Street. Instead of Cramer giving the George Bailey award for best banking we should be nominating a "Mr. Potter" award for ruining Bedford Falls! Unless there is a complete overhaul this likely will repeat itself. Where were the regulators and the rating agencies? I think they were in Mr Potters office figuring out how to scam the building and loan!.

[smokey]

You are so right, Pauly B about greed. It is really quite funny really -- Buffet is right too about "dumb money." It may sound cruel -- but it is just natural law at work. Natural law (to me) is that when I was a kid, and I put my finger on a hot stove to see what it felt like, I got burned. It didn't matter that I was a good kid, or that even that I was intelligent -- I still got burned. Hearts may go out to those who get so burned, and mine does for many of those in trouble . . . but it is limited, because it is based on the motivations of those who have been screwed.

The same can be said for the so-called "energy crisis." I bet those 600 homes that were abandoned were not built intelligently, either. That is, a home can easily be designed to maximize energy savings (and thus $avings) -- and I'm talking about more than simply stuffing more insulation into the walls and attic. As a recent article in the UK's Guardian pointed out, so-called "revival" Tudor homes of recent construction were shown to be far less insulated than those of orignal vintage (this from a university study). Likewise, homes that integrate solar panels in grid-tie setups have been moving much faster in the marketplace in California and other areas than similarly priced homes without solar setups. But are developers and governments listening, yet? For the most part, they're still dragging their feet as always.

[kurt walter]

Listening to the media pundits is a waste of time.

[swaps]

The pundits on CNBC were also surprised at when housing crashed last summer it did not immediately impact unemployment rates. That's because such a high percentage of the construction workers in high growth coastal areas were illegals from Mexico who could not file for unemployment. Which brings to mind that in Aurora Colorado about four, five years back the city let a contract to develop a wide drainage channel behind our home into a more landscaped greenbelt. The contractor for this project used only illegals. One Saturday I walked the dog up to the ball park and from there I looked back and watched one guy actually working over an hour, while the 18 others just stood around and looked at us in the distance. They were not picked up until 5 p.m. that night. I clearly saw that as social engineering more than anything else to bring illegals up here and help them to build a base. That project, by the way, got done a year late and they had to redo the grading at least once.

Senator Salazar of Colorado -( a hyphenated American, who as a blue dog Democrat - clearly wants to help keep the Mexican rich untaxed and unbothered by the Indian blooded citizens they are racistly deporting to the U. S.) -- then led the fight last summer to give these illegals amnesty so they could immediately consume the assistance programs that their employers here had not funded.

So this housing thing was playing out on many levels - absolute criminal behavior by the investment bankers as they sliced and diced imaginary CDO-s - imaginary because the collateral wasn't there. Absolute fraud by the rating agencies. Absolute greed by the mortgage origiinators. Absoulute fraud by some mortgage applicants, especially the ones who were just buying to flip, Absoulte incompetence by the Federal Reserve, yet again, which should be shut down.

Free markets is the mantra of the Republicans and the limousine Democrats - so why won't they and the Fed just let the free markets fall freely until equilibrium is restored? Banking is the only industry that is guaranteed life support at all times. Any other industry can export all of its local jobs and just become a shell. Look at the industries, from steel to shoes, that have seen its domestic production matrix absolutely collapse into nothingness.

Now that the banks have screwed up so royally, let's outsource all our banking applications and fundings operations to China and India and Brazil. Let the bankers flip burgers, if an illegal doesn't outwork them and out push them.

If we can't abolish the Fed, let's at least fire all the domestic Federal Reserve staff and give the job to the Chettiars, the Indian caste that is highly gifted in banking and money lending. In fact, the Chettiars reportedly invented double entry bookkeeping and they have flourished in several settings around the globe.

[beachbum]

In my area in Eastern North Carolina home building is still going gang buster. Young people seem to be able to afford twice the size houses on average than say 10 years ago. The economy seems to be ok, but nothing to write home about. Only thing I can figure is our lending institutions must have plenty to lend.

[johnmorrison9]

Consider Warren, Hillary Helper, a Vulture.
I love the way he buys a big position, and loans the stock to be shorted for a hefty fee. Wow he is a ***k

[Kunst]

Isn't it interesting that people are starting to ask where the regulators were. For a certain political segment (that has been in power during the time in question), "regulation" is a dirty word. Maybe that has something to do with the mess we find ourselves in.

The problem with failure to regulate is that you inevitably get a race to the bottom. In this case, irresponsible lenders went to town and made a ton of money. Any lender who stuck to responsible standards was undoubtedly laughed out of town. Who knows, he might have gotten sued or fired for underperforming. This is where bubbles come from.

Another example: when trucking was deregulated, safety suffered. There is a cost to safer operation -- better maintenance, not letting/forcing drivers to stay behind the wheel too long. Those who do it right are undercut price-wise by those who cut corners. Same with industrial pollution. It's much cheaper to dump your waste in the local water or air than to clean or prevent it properly. Proper regulation makes sure reasonable rules and standards apply to all. Then they can compete without exploiting their workers, their customers, or society as a whole.

The problem with the anti-regulation folks is that they only look at short-term costs and ignore the future. Sort of like your average teen-ager.

[swimjames]

One issue you don't address is the problem that there are more people who can't afford to get a mortgage than those who have good credit and good salaries who can.