Berkshire's Charles Munger: Housing Bubble Caused By 'Megalomania, Insanity, And Evil'

Charles Munger, the always-quotable vice chairman of Berkshire Hathaway, wasn’t mincing words on Friday.

“The bubble in America was caused by some combination of megalomania, insanity and evil in, I would say, investment banking, mortgage banking,” Munger said at a conference in Pasadena.

In assigning responsibility for the housing bubble that precipitated the financial-sector collapse of 2008, and ushered in a period of prolonged economic contraction, Munger also took issue with the accounting industry, calling it "contemptible" for its role in the debacle.

And he had particular scorn for Richard Fuld, the former chairman and CEO of Lehman Brothers.

“I would guess that Dick Fuld has not a single ounce of contrition wherever he sits today,” Munger said.

Munger was speaking at a “Morning with Charlie” event, held in lieu of the annual shareholder meeting of Wesco Financial, a Berkshire company that Munger had chaired.

Berkshire Hathaway recently acquired Wesco’s remaining stock, removing the company from public trading. Munger chose to make a public appearance anyway, though he said in April that the event would only be “for hard-core addicts.”

Munger is known for his blunt, often combative pronouncements. In April, he opined to a group of shareholders that Greece was in trouble because its citizens “don’t want to pay taxes or do much work.” In 2009, he called cap and trade “monstrously stupid.”

Around the same time, he said of Wall Street pay, “A man does not deserve huge amounts of pay for creating tiny spreads on huge amounts of money. Any idiot can do it. And, as a matter of fact, many idiots do do it.”

At Friday’s meeting, Munger endorsed Coca-Cola stock, calling it “one of my favorites” and an “easy choice” for investors. He praised Elizabeth Warren, President Obama’s appointee to oversee the Consumer Financial protection Bureau, according to Bloomberg.

He had a qualified compliment for former Federal Reserve chairman Alan Greenspan, whom he called “a smart man” but one who “totally overdosed on Ayn Rand at a young age.”

And he gave a wry nod to his own fanbase. Noting that Friday’s meeting would be the last of its kind, Munger told the crowd, “You all need a new cult hero.”

Comments

[rdsathene]

05:34 PM on 07/06/2011

@NevaforLeadership Late in this thread you posit a "view" that attributes these problems to Neo-Malthusianism and over-consumption? Earlier in the thread you blame "People who could not afford the mortgages, let alone understand them, bought in" for the housing crisis.

While we'd all like to share your sentiments for those "innocent" bankers that couldn't possibly have known that a fast food fry cook couldn't afford the note on a half a million dollar home, any of us that understand how this economic system works aren't as quick to blame the victim as you are.

Corporations are not everyday working people at all, but the tiny minority of plutocrats that own the means of production. The working people at corporation are there to be exploited so that they can produce profit for the owners of said organizations. Either you are extremely cynical or woefully misinformed regarding economics to blame the victims.

There are easy answers to solving these problems, but they just involve jettisoning an economic system that places profits before people. The fault of the entire crisis lies squarely with the ruling class, and it's refreshing to see Munger, one of the selfsame ruling class, call his own industry evil, since it is.

It was also refreshing to see Munger take a swipe at the selfish alcoholic philandering hag Alisa Rosenbaum (aka Ayn Rand), from whose deeply depraved mind sprang loathsome fictional characters like John Galt and Howard Rourke.

[offmyrocker]

09:54 PM on 07/05/2011

is that dude in the picture stuffed

[jcaunter]

01:18 PM on 07/05/2011

Prime exhibit A of a bankster megalomaniac: Charlie Munger:

“You should thank God [for the Wall Street bailouts]. Now, if you talk about bailouts for everybody else, there comes a place where if you just start bailing out all the individuals instead of telling them to adapt, the culture dies.”

“There’s danger in just shoveling out money to people who say, ‘My life is a little harder than it used to be. At a certain place you’ve got to say to the people, ‘Suck it in and cope, buddy. Suck it in and cope.’”

http://www.bloomberg.com/news/2010-09-20/berkshire-s-munger-says-cash-strapped-should-suck-it-in-not-get-bailout.html

[Maymae]

07:53 PM on 07/15/2011

The thieving, lying rich must pay first. Make them pay back all the trillions that they have stolen, plus interest, and severe penalties. I didn't cause this financial mess. Why should I pay anything?

[Django48]

01:06 PM on 07/05/2011

Clone this guy while there's still time.

[jcaunter]

01:20 PM on 07/05/2011

It sounds like Charlie Munger has a classic case of projection going on there. Are you sure you want to clone that?

[Thefamilyvan]

08:41 AM on 07/05/2011

Which is why Obama SHOULD tax the wealthiest Americans! Look what they got away with! Why won't Americans understand that and just DO IT!

[richardgordon]

12:45 PM on 07/05/2011

You are absolutely right. But the problem is two fold. First of all you have a plutocracy that is very skilled at manipulating many gullible voters. Secondly, these voters are so oblivious to reality that they will vote against their own interests. Thirdly, these voters are incapable of rational thought.

[NevaforLeadership]

08:30 PM on 07/07/2011

What did they get away with? Please be specific and back up your answers with facts.

If you took the time to find just how much taxes the wealthiest Americans and corporations pay, you would be amazed -- huge. I speak from experience.

Also, millions of people owe their livelihoods to these wealthy Americans and corporations.

Which would you prefer: fewer jobs and more taxes; or more jobs and less taxes? It's a really simple principle. There's a pile of money. It either goes to taxes or it goes to jobs. You can argue that if the pile goes to the government, it will provide all kinds of entitlements and handouts. I put it to you that people are much better off with the dignity of working.

From an Obama supporter.

[Maymae]

07:56 PM on 07/15/2011

The rich have had these Bush tax cuts for nearly a decade. So, where are the jobs? They're in China and India.

[studlyguy]

12:14 PM on 07/04/2011

What is going here is the Ayn Rand selfish is good ,and greed for your own self is good. and doing things for others and helping others and paying a living wage is bad,and giving support like medicaid/medicare/food vouchers/SS is bad if you're midle/lower/poor ,that's only for rich welfare .as they would call it, the irony is at the end of her life ,she herself was begging for federal what she called earlier welfare, in the form of medicare/SS/ohhhh the the same scenario for another A R cultist Paul Ryan took SS benefits when he was young ,Bachmann taking medicaid payments for their bogus clinic,ohhhhh they're all sickos ,this world is being overrun with this mindset,is it any wonder America or that matter the world is in dire straits.

[jcaunter]

01:24 PM on 07/05/2011

When the government is handing out bread and circuses to everyone, you would be at a material disadvantage to not partake. That doesn't mean the system is any more solvent or stable for the long run, or that it's any less unhealthy for society; that just means that people are trying to get by as best they can till everything falls apart.

[opmik75]

01:39 PM on 07/05/2011

Did you hear how not too long ago Paul Ryan was being chased after a person wanting to give him a copy of the Holy Bible? This young man's point was Ryan's devotion to the values Ayn Rand were in total opposition to the values of Jesus Christ, a man who valued working with the poor and sick. Brilliant! Genius!

All Ryan said before ducking into a car and slamming the door: "I have a copy of the Bible, thank you." Golf claps to that guy who brilliantly found a way to highlight the morally unconscionable double-standard that Paul Ryan Republicans have. You can't worship Ayn Rand and at the same time profess to believe in Jesus Christ.

[Karma2U]

04:30 PM on 07/07/2011

The anti american, anti Christ, home schooled GOP only reads it's own edited, censored, and phonetically spelled bible.

[healnghanz]

09:19 AM on 07/04/2011

We have to hunt down the sociopaths that run Hedge Funds and treat them like the monsters they are; confiscate every dime they ever made, and throw them in the boiling pit of despair.

[mariusvinchi]

07:43 AM on 07/04/2011

And nothing has changed!
The same sociopaths in charge, doing the same thing. No new rules or regulations. Worse, they have been richly rewarded. That'll teach'em!

[iam99]

02:39 AM on 07/04/2011

The people are still on the line; TBTF lurks to pounce again, by design.

[Sunwyn Ravenwood]

01:39 AM on 07/04/2011

It's nice to see someone out there has his head on straight. Though you said it 1000 times, though you shouted it from the rooftops, most people will simply NOT get the message: EVERY boom is followed by a bust. No exceptions, none, zilch, zip, zero, nada, period. End of story.

[xilduq]

12:44 AM on 07/04/2011

'Megalomania, Insanity, And Evil' caused housing bubble

or more simply: 'fraud' caused housing bubble\

unfortunately obama has refused to investigate and prosecute the fraud - which makes him a FR$UD too

[blackranger]

10:00 AM on 07/04/2011

Guess you think you just send out a couple of guys to look at the books and you figure it all out, send someone to jail and it is over. Obama was just a little busy right from the start, trying to save an economy that was on the brink of total disaster. We are still in dire straits but most Americans don't have a clue, it is not a simple problem and it will not yield to simple solutions.

[xilduq]

10:56 AM on 07/04/2011

here are some links if you care to read more informed opinions: http://www.nakedcapitalism.com/2011/07/summer-rerun-the-empire-continues-to-strike-back-team-obama-propaganda-campaign-reaches-fever-pitch.html

which references a Frank Reich article: http://nymag.com/news/frank-rich/obama-economy/presidents-failure/index2.html

i dare say you are deluding yourself which prevents you from seeing the truth

[xilduq]

11:03 AM on 07/04/2011

here are links to more informed opinions on this topic: http://www.tiny9.com/u/yves_smith

the above link references a Frank Rich article: http://nymag.com/news/frank-rich/obama-economy/presidents-failure/

i could say you are one of the clueless since you appear to be deluding yourself which prevents you from seeing the truth

[seeksthetruth]

03:42 PM on 07/03/2011

This would not have happened without deregulation. There will always be "megalomania, insanity and evil" and greed. That is why we need regulation. The GOP is wholly owned by the rich and transnational corporations and therefore tout "self-regulation". History has shown that this only works well for them and is disastrous for the other 98%.

[NevaforLeadership]

08:27 PM on 07/03/2011

Strange as some may find it, it was Clinton and his financial trio, Greenspan, Rubin and Summers, who proactively went out of their way to ensure there was no regulation in the OTC derivatives market.

They belittled, derided, diminished and dismissed Brooksley Born, head of the CFTC at the time, who drafted a set of regulations and attempted to get them on board. They laughed her all the way out of town.

It is they, not the GOP, who bear direct responsibility for a lion's share of the mess.

[bootstrap bill]

07:49 PM on 07/05/2011

Yep, that trio of crony capitalists got the Senate to hold special hearings specifically to shout her down until she had no choice but to give up the fight. When will people here begin to realize the Democrats are just as responsible for this mess as the GOP?

[Karma2U]

04:39 PM on 07/07/2011

It was Reagan who vigorously deregulated all business in the US while busting unions, firing air traffic controllers, and cutting OSHA - because really who needs safety regulations anyway - plus he fooled the public into believing that the flash crash was a computer glitch.

[NevaforLeadership]

09:28 PM on 07/03/2011

Try my response again.

GOP wholly owned by the rich? All those tea partiers and creationists? Seems to me they are mostly a motley crew of far-from-rich discontents and lost sheep who mistook their bibles for science texts.

Seriously, though, Clinton and his financial trio, Greenspan, Rubin and Summers went out of their way to proactively ensure that the OTC derivatives market was not regulated. Clinton's housing policies were the beginning of the end.

Brooksley Born, head of the CFTC at the time, attempted to draft up regulations, but she was ridiculed, diminished and derided all the way out of her job.

[shadow013]

08:45 AM on 07/04/2011

Been reading "Reckless Endangerment" or just have a long memory? Financial crisis is a bipartisan product. Being "belittled, derided, diminished and dismissed" are effective tactics. Such tactics are being used against the Tea Party sympathizers and Republicans who align with Tom Hoenig's views, not Ben Bernanke's. Bell-shaped IQ curves are not exclusive to one political party. Oprah sold books, many fiction. Glenn Beck sold books, mostly serious things from Hayek to Bernays to Federalist Papers.

Dichotomy lies between Political/Financial class and the rest of us, not so much left vs. right. Keeping the insults and divisiveness going benefits the small, powerful Political/Financial class.

[Tom Iarossi]

09:09 AM on 07/04/2011

Clinton was a fine Republican president (yes, that's what I said), and Rubin and Summers certainly needed to be put to pasture instead of into positions of power. But you can't discount the role of the GOP Congress in this mess. The deregulation of derivatives with the CFMA and their general opposition to regulation of anything commercial directly led to this debacle. They love to take credit for things they were minimally or not at all involved with, but they refuse to take responsibility for their own actions when it turn south.

[Peter Combs]

03:09 PM on 07/03/2011

Talk about calling the kettle black....this guy is a joke.

Who stepped in with 5 Billion for Goldman's? Berkshire did..

Check out who they have their biggest holding in...Wells Fargo, Mellon Bank, AMEX, Wal Mart, Mastercard, GE, Moodys, US Bankcopr and Exxon...

[NevaforLeadership]

08:27 PM on 07/03/2011

But wouldn't like to own some Berkshire shares?

[bluereality909]

01:35 PM on 07/03/2011

When the American people started using housing as investment banking, instead of a home to be lived in and raise a family. They invited the greedy bankers and wall street into the game and they exploited the entire market for their gain. With all the jobs now gone offshore, the next model will be the top 10% buying up these homes and renting them to individuals. They will control rental prices which will do nothing but rise, for this is the next greed cycle. Property taxes will rise, for the taxable prices of homes have fallen. Counties and cities bloated their spending from the cash rich decade from continued expansion of home prices. They gave liberal pay increases and pensions to the public sector, now they are having trouble to sustain this entitlement sector.
The poorer among us will suffer, the middle class will whine and the top 10% will only get wealthier. You can never replace a manufacturing economy with the housing sector, or we are doomed to fall prey to the bankers again. Globalization was not thought out in advance and the "experiment" has back fired on the world economic model.
We have entered an era where the top 10% have 75% of the wealth of the nation and they will have to carry 90% of the taxes. Corporate greed created this new reality, now they must pay for it and stop their complaining.

[NevaforLeadership]

08:43 PM on 07/03/2011

Actually bankers starting packaging mortgages into mortgage backed securities a very long time ago, with no adverse effects on either housing or banking. On the contrary securitization is one mechanism that has allowed economies and people to thrive.

As the saying goes, "It takes two to tango." Mortgage securitization became a problem when mortgage qualifications went out the window. People who could not afford the mortgages, let alone understand them, bought in; and bankers became greedy, packaging these dodgy mortgages in among the rest of them.

As for globalization, from one perspective it has worked. It has created jobs and better lives for millions and millions of people around the world. That is part of what globalization is all about. When the chips are down, who can really argue with that. Why should we in the western world be more privileged than the many millions in the rest of the world?

Nothing new about property owners controlling rental prices. It's been that way all along; and one thing I know for certain is that when it comes to rent, markets don't dictate their level, as economists would love to have us believe. They always go up, no matter what the markets are doing.

More on next comment. I have time tonight.

[Sunwyn Ravenwood]

01:44 AM on 07/04/2011

The real problem is that banks, savings and loans, mortgages, and insurance companies, and so forth are all insured by the federal government. This encourages risky behavior, because if the risk pays off they get to keep the profits and if they lose the taxpayers reimburse them for their losses. What kind of sense does THAT make?

[shadow013]

09:30 AM on 07/04/2011

Swaps facilitated, excused lousy underwriting. Securitizing loans is not good or bad. It depends on quality and due diligence. The MERS and poor underwriting business model with no skin in the game may have left large pools of mortgages bonds without mortgages actually in them in violation of pooling and servicing agreements. OECD which pushes globalization released a paper on contangion risks that weren't recognized (but should have been).
http://www.huffingtonpost.com/2011/06/29/globalization-economic-crises_n_887083.html

[NevaforLeadership]

08:58 PM on 07/03/2011

You say corporate greed created the new reality and must pay for it, but who are the corporations? They are millions of every-day working people just like you and me. They are the institutions that produce all the food, gadgets, oil and gas that we use every day. They are the institutions that create jobs. So why on earth would anyone want them to suffer and be chopped at the knees?

If globalization were reined in and manufacturing were brought home, would we complain about paying double the prices for our goods and services, or now that we are used to the Walmarts of the world, would we settle for those working in the manufacturing plants earning third-world wages?

There are no easy answers, which illustrates the stupidity of blaming, of all people, Obama.

I am of the view that these problems have been long in the making, and massive overpopulation and gross over consumption are root causes. No one escapes responsibility.

In the end it is we who have to change. In the end it is we who have to take control of our lives and do what has to be done so as not to rely on governments or corporations for our wellbeing and security.

[saskatoonie]

09:03 PM on 07/03/2011

Corporations are not everyday people, you are totally wrong on that count. Everyday people have no power!

[kamact]

12:57 PM on 07/03/2011

I agree with Munger's statements, except those regarding Alan Greenspan, who is a corrupt agent for the TBTF banksters and, at best, a massively failed economist.

[seeksthetruth]

03:45 PM on 07/03/2011

Yes, although he did say that Greenspan “totally overdosed on Ayn Rand at a young age.”

[abbadabba]

08:42 PM on 07/03/2011

Wasn't that beautiful?

[shadow013]

09:00 AM on 07/04/2011

Think he may also have sucked up too much Keynes. Keynes's "means of production" has to be redefined in terms of internet tech, and virtually no one has looked at how to adapt Keynes's ideas to the 21st century.