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Thursday, September 23, 2010 3:11 AM

Janet Tavakoli on the "Myth of the Immoral Debtor"; An email from a Charlie Munger student; "Business as Usual"

Mish Moved to MishTalk.Com Click to Visit.

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.

Yet Another Jaded Former Berkshire Shareholder and Fan

From "JL", an asset manager who sold on the news ...
Dear Mr. Buffett:

I suppose if one lives long enough, they eventually see all their living, revered heroes let them down in some way. Some succeed in this fashion far more than others. And man let me say this, “you blew me away.”

After over a decade of being a “naive” Berkshire “partner/shareholder” who always defended you, I have sold every single share I ever owned as I sadly witnessed you violate far too many of your own guidelines in the Berkshire Owner’s Manual. This was a tiny dollar amount by your standards, but at one time more than 50% of my family’s net worth.

You may be interested in knowing more details as to why I sold my shares, as the majority of letters that continue to pour in to Kiewit Plaza surely share a similar tone to this one. You and Charlie “Fear” Munger continue to misrepresent history, and that is why the public’s rage at you and at Wall Street grows with every passing day. And that level of anger will remain elevated and growing and directed at the miscreants known as the “bailout sympathizers” for as long as the unemployment rate does. We could and should have wiped out the “too big to fail” equity holders before we wiped out the tax payer. But that would have meant Berkshire’s precious book value would have taken a major hit, and so you used up all of a billionaire’s political capital and traded the ethics and morals you seemingly worked a lifetime to build, to prevent that from happening. Was that trade a good one?

And I have a big problem with that sir. When a select group of super-wealthy, elite, politically connected insiders are allowed to transgress a nation’s various moral, securities, and bankruptcy laws under the falsely dramatized “emergency” threat and guise of an Economic Pearl Harbor or a new Adolph Hitler (have you scolded FearMunger yet for his Antoinette moment to the University of Michigan kids?) to deplete its national treasury, and gets away with it....well then it is time for the “great unwashed” to be very concerned. And the guilty bailout offenders are very right to be worried of the social chaos that FearMunger warns us about, if WE are unable to “suck it up and cope!”

In perpetrating the greatest illegal transfer of wealth in the history of the world, you have lowered the capitalistic bar to an all-time historic low. This much I know: Despite your charitable efforts and investing acumen, history will not be kind to you for these repugnant actions, and your true legacy is:THE FATHER OF ALL MORAL HAZARD AND THE U.S. ZOMBIE ECONOMY

You will probably not be around to see it devolve into this state first hand, but I can assure you that as the lead architect of the immoral bailouts, you have sent me and my kids and the rest of us right into SQUANDERVILLE hell. Shame on your bailouts, shame on you for remaining silent while we failed in crafting effective financial reform, and shame on your world-class hypocrisy. There is so much more to life than the compounded annual growth rate of your book value!

Yet Another Jaded Former Berkshire Shareholder and Fan,
That was the exact letter "JL", an asset manager sent to Warren Buffett.

Let Them Eat Cake

I received numerous Emails similar to the following
Hello Mish,

Great job. Has Charlie Munger become this generation's Marie Antoinette? Let them eat cake!

Reader from Canada Chimes in on Narcissism
Hi Mish:

I have to say that your article, Amazing Arrogance, really hit a chord today.

Your article that features the appalling statements of Mr. Munger that are equally insensitive as the "We care about the small people" statements from Tony Hayward, former CEO of BP.

My wife & I have been doing research on Narcissism. It is a fascinating area to explore and I believe most people who seek and rise to a position of power demonstrate many of its characteristics.

Here's a link to a site that features an author, Sam Vaknin - a narcissist, who has written a book detailing his observations: http://www.healthyplace.com/personality-disorders/malignant-self-love/narcissism-narcissistic-personality-disorder-npd/menu-id-1469/

His observations are chilling to read. There are several links to his articles at the bottom of the page on this link.

All the best.
Chris - North of Toronto
God's Work

Reader "Tin Hat" sends a list of notable quotes:

  • Goldman Sachs' CEO Loyd Blankfein says "We're doing God's work."
  • BP's chairman says "We care about the small people."
  • Lord Griffiths, vice-chairman of Goldman Sachs International, says the British public should "tolerate the inequality as a way to achieve greater prosperity for all".
  • Now Munger thinks we should "suck it up and cope." And "thank god" for the bailouts.

Tin Hat quips "Tell me Munger, which god might that be? The Man Upstairs, Lloyd Blankfein or Lucifer?"

Ryan Skene, Commercial Account Manager

Ryan Skene, a Commercial Account Manager for HSBC who supported Munger (HSBC Commercial Account Manager responds to "Amazing Arrogance") had second thoughts.

Ryan sent a second somewhat apologetic email saying "perhaps a more measured response from myself would have been appropriate."

He went on to say ....
I do not think it fair that US bank's had to be bailed out at the expense of the US taxpayer. Clearly, the most fair approach would have been for banks to have made loans that they could be reasonably assured would be paid back. Obviously, that's not what they did. And truly, some banks and their executives did pay pretty dearly for their mistakes. Dick Fuld may still be a millionaire, but I doubt greatly what remains of his networth is much consolation for the shame he must feel ever morning when he looks in the mirror.

Still, I am entirely glad that the bailouts happened. I saw first hand the fear that gripped bank executives as they could not be sure which of their counterparts were good credits and which were not ... and the fear from business owners, many of them what you would consider small, that the credit they rely on to operate their businesses had dried up. We were on the precipice of a total meltdown. The bailout indirectly probably did save my job. But it also saved the job's of the welders, the machinists, the accounts payable clerks, the janitors, and the sale people that work for everyone of my clients ... all of whom would have been faced with tough decisions had confidence not been restored in the system.

Bank Bailout vs. Meltdown of Civilization. While bailing out the bank's was evil in a sense, for me it was the much lesser evil of the two.
Meltdown Myth

For starters, Fuld should be facing criminal charges not facing a mirror with his millions, guilty conscious or not.

More importantly, there would not have been "a meltdown of modern civilization" had we closed the banks. Life would have gone on, just as it did after Lehman went to zero.

Had the banks gone under, but the deposits insured, life would be closer to normal right now. The bad debts would have been eliminated, the equity holders wiped out, and the banks could have been recapitalized and lending again.

Instead, banks are still saddled with bad loans, the Fed continues to act criminally to help banks hide those bad loans, taxpayers are on the hook for more toxic debts of banks, and taxpayers are also on the hook for "unlimited Fannie Mae losses".

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.

Top Three Orwellian Comments Of All Times

  • An American major after the destruction of the Vietnamese Village Ben Tre: "It became necessary to destroy the village in order to save it."
  • Vice President Joe Biden: "We Have to Go Spend Money to Keep From Going Bankrupt."
  • President George W. Bush: "I've abandoned free-market principles to save the free-market system."

In contrast, I believe The Most Redeeming Feature of Capitalism is Failure.

Business as Usual

President Obama continues down the path of punishing the innocent and the middle class to protect the likes of Goldman Sachs, Warren Buffet, Charlie Munger, and numerous bank CEOs.

Sadly, this is precisely what one should expect when Goldman Sachs, Tim Geithner and the New York Fed, and economic economic illiterates including Fed Chairman Ben Bernanke, former Fed Chairman Alan Greenspan, White House economic adviser Larry Summers, and House Finance Chairman Barney Frank, set the economic policy for the country.

Meanwhile, Elizabeth Warren was Tossed a Bone and Appointed Geithner's Lapdog so don't expect any serious financial reform. With that, President Obama just effectively hung out the world's largest advertisement "Business as Usual".

Typos corrected from "amoral" to "immoral"

Mike "Mish" Shedlock
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