10, 10, 2008
In a fire there is usually some either official or self-anointed person who tells people to please walk to the exits in an orderly fashion. This is usually required to counter that ever-present, panicky, over-caffeinated person who is screaming and running to the exit. This is the same person who manages to extract intense drama at back-to-school night. In the current crisis one of the very loud, panicked voices in the room is the media. It’s that announcer on NPR this morning that must have said the word “crash” 20 times in a five minute period. It’s the talking head comparing this to the Great Depression yet not really presenting any facts to counter the dramatic effect. They may not be technically wrong in what they’re spouting but it’s not helping. And it’s not fear for self preservation or good journalism that is driving it. It’s ratings and dollars. It’s the ad-driven infotainment industry that modern news organizations have become. So where is that calming voice that is imploring us to walk to the exits for our own good?
Normally it would be our President but we all know that is not going to work in this case. So in the absence of a singular leader we can turn to, how about if the Fed or some other organizing force created that calming voice? Where are the radio ads and commercials explaining the situation to Americans and the world? It won’t fix the problem of mortgage defaults. But it will at least potentially influence what has become the root problem, the psychology of the markets. In the past two weeks I haven’t heard a single government official on NPR that has been tasked with getting the message out that the government has an approach they think will work (of course that requires them to have one). Why not create a concerted media campaign to just calm people down. As part of that why not enlist the help of the media conglomerates. We all know that the patriarchs of these huge media conglomerates can influence the content on their properties. It would be a much bigger effort but not dissimilar to the networks agreeing to not broadcast election predictions until after all the polls have closed. Why not appeal to their civic obligations and enlist their help to be that calming voice alongside a well-orchestrated government campaign to do the same?
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10, 5, 2008
If you haven’t had a chance, check out Buffett interview on Charlie Rose. It was great to hear Warren’s views on subjects ranging from the “bailout” (Buffett prefers seeing it as an investment) to trade deficit to tax rates. Here are some of what I thought were highlights (in my PowerPoint grammar).
- “Economic Pearl Harbor”. $20 trillion real estate market dropped 20%, $4 trillion loss. Massive real estate bubble bursting.
- $40 billion in Treasuries just sold paying 1/20 of 1% in interest. Business/Americans want safety at any price. Buffett has never seen people so scared. [Clearly evidenced by GE deal.]
- Entire business community deleveraging simultaneously. If whole world is seller only U.S. government can serve as buyer. Has nearly unlimited access to capital, lowest possible cost of capital, and can stay in an investment for very long time.
- Would prefer quick, “good-enough” response to delayed perfect response. America is like great athlete that just had heart attack. EMS team shouldn’t argue over where to put stethoscope or blame patient.
- Would give Paulson blank check. “Trying to invest through 535 people [Congress] is tough job.”
- #1 issue is Treasury paying market prices for “investments” as it provides liquidity to economy. Thinks Congressional oversight should be focused on making sure Treasury pays market prices with $700 billion instead of overpaying.
- Believes mark-to-market should stay. You get in a lot of trouble when you start putting fictitious numbers in financial statements. Companies shouldn’t be afraid to tell the truth even if they think an asset is undervalued.
- Higher unemployment and inflation coming. $4 trillion loss just now starting to hit mainstream economy in terms of car and jewelry sales. Will get worse.
- As a country we spend $2 billion a day more than we earn. Are selling off pieces of our country to fund overspend. (He does an even better job describing this in another great Rose interview. We’ve used up our savings account and are now living off credit cards. Our children will have to service interest.)
- Supports Obama. Supports higher capital gains. Thinks lower tax for return on capital compared to tax on return on labor (income tax) is wrong. 20% of population trying to live on $21,000 a year. Push money to these people and they will spend it. More taxes should come from people like Buffett.
- Fed structured AIG deal very, very well. Drove tough terms. “I want to hire the guy that drove that deal. He’d fit in well at Berkshire.”
P.S. I also I really like Roger Ehrenberg’s comments on this as well.
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