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Warren Buffett and Charlie Munger: Winning the Class War

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In Third World America: How Our Politicians are Abandoning the Middle Class and Betraying the American Dream, Arianna Huffington describes how Wall Street insiders used the financial crisis to bribe, coerce, and manipulate Washington into bailing them out and handing them unprecedented, unconditional windfalls.

Fed Economists Gara Afonso and Anna Kovner with MIT finance professor Antoinette Schoar offer new evidence suggesting that although credit terms were tougher for large underperforming banks in the two days after Lehman's bankruptcy, the much-hyped market "freeze" was a myth.

Thomas Paine, one of the Founding Fathers of the United States, urged Colonists not to trust the words of "interested men" tied by money and status to the British government and British royalty: "It is the good fortune of many to live distant from the scene of sorrow; the evil is not sufficiently brought to THEIR doors to make THEM feel the precariousness with which all American property is possessed."

Warren Buffett Jumped the Squid

Today's interested men defend the bailouts and subsequent absence of felony indictments. They include Warren Buffett, Chairman and CEO of Berkshire Hathaway, and Berkshire's Vice-Chairman, Charlie Munger. I wrote a book, Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street, about the financial crisis contrasting their formerly avowed principles of prudent finance with Wall Street's malfeasance. But they are not regulators, altruists, or elected officials. As officers and major stakeholders of Berkshire Hathaway, their goal is to maximize shareholder value. If the choice is between Berkshire's gain and public interest, public interest loses. (See: "Warren Buffett, Stop Using my Credit Card!" TSF, November 23, 2009)

Buffett heaped praise on Berkshire's investments in Goldman Sachs and Wells Fargo (among others), while overlooking problematic activities within these bailed-out financial empires. Warren deserves great credit for donating most of his wealth to charity, but one must deduct serious points because some of "his" wealth was appropriated from unwilling fellow citizens.

Charlie Munger's War

Andrew Frye of Bloomberg News reported Charlie Munger's recent remarks to law students at the University of Michigan. Munger suggests we shouldn't be "bitching about a little bailout;" we should have wondered why the bailout wasn't even bigger. (Click here for video.)

Taxpayers have already been saddled with crushing debt that transferred benefits to those most connected with Washington. Bloomberg News estimates the financial rescue already approaches $12.8 trillion in combined lending, spending, guarantees, and commitments. Taxpayer-subsidized banks that played a key role in getting us into this mess continue to pay their officers handsomely for failure. There were alternatives to Washington's largesse: controlled bankruptcy, conservatorship, and restructuring. (See: "Alternative to Treasury Bailouts: One that does not Violate the Spirit of Democracy," TSF September 25, 2008.)

Washington's overheated money printing to support the bailouts has the nation in the grips of stranguflation. Lost jobs and reduced salaries combined with rising food and energy prices feel like hyperinflation to those most in need. Meanwhile, deflation has hit middle class investments and pension funds, and uncertainty about the future leaves them vulnerable. Third World America reveals that some former middle class Americans are using credit cards charging high interest rates to buy essential items including food.

Munger conjured the specter of Germany's Weimar Republic in an attempt to justify the bailouts: "We ended up with Adolf Hitler." ZeroHedge, home to finance's mainly masked throw downs, spoke for many (including me), when it retorted that Germany's hyperinflation was born from "wanton money printing" and set the stage for Hitler.

When it comes to bailouts that will hit middle class taxpayers most, Munger has a double standard:

"The 86 year old told the 25 million of Americans who comprise the 16.7% of the underemployed population in the country, to "suck it in and cope." Not only that, but apparently, all those who have been without a job for 99 weeks and more and no longer have recourse to insurance benefits, should "thank God for bank bailouts." Why of course he would say that: after all $26 billion worth of direct BRK investments were the recipient of over $95 billion in bailouts."

ZeroHedge, September 20, 2010.

We bailed out banks that were the key architects of much of our national misery and currency destruction. Those living in poverty will have a much more difficult time bettering themselves, as much of the middle class sinks:

"Stopping our descent into Third World status won't be easy. It will take daring initiatives from both the private and public sectors--supercharged with an infusion of personal responsibility."

Third World America p. 171.

Updated Disclosure: I currently have no position (long or short) in Berkshire Hathaway.