Let’s re-examine what the experts say.
Paulson on AIG and Lehman
Buffett a Year After the Crash
It makes more sense to hear what the experts say than it does for non experts to fight about the economy on the blogs. And if I am not mistaken, Paulson and Buffett are both Republicans. Both have forgotten more about money than I have ever learned. Paulson is also out of Goldman Sachs. He is well respected and worth a fortune. He stepped up to the plate to serve his country. He had nothing to lose and everything to gain.
It was the right thing to do to let Lehman go bankrupt. They were doing some really shady stuff with creative accounting techniques that let them make it sound like they were in better financial shape than they were. Lehman was one of the big culprits in the financial meltdown, in my opinion.
I’m not so sure what to say about AIG. In some ways, it seems they’ve been allowed to get away with an awful lot since being bailed out. I don’t know how things would have turned out if AIG had been allowed to go to bankruptcy. It however probably has earned a reputation as being one of the more hated financial firms!
No one has ever gone wrong following Buffet. A lot of his advice is well worth taking. And, if you had been fortunate enough to have the money to invest in his stock (it’s very expensive per share – although just recently he started a “B” class of stock that is very cheap to invest in) – you would have a lot of money now if you had invested in his stock some years ago.
I have a great deal of respect for both Paulson and Buffett. Both videos are a good listen. You really don’t have to watch.
Paulson reinforces why the ‘too big to fail’ was definitely a component of having to do bail out.
GR thanks for directing the article my way.
Everyone, there is an article attached to the post for the thread on why Lehman Bros. failed. They were cooking the books. However, their failure set off a domino effect of epic proportion.
I appreciate your providing this infomation. Unfortunately the Lehman link doesn’t work. Could you post in a response the link. I would be interested in what the analysis is.
Sure, hold on.
————————
There you go, Rez. Easy fix. I had forgotten to include the link after I bolded the title. Duh me. Thanks for bringing it to my attention.
thanks for taking care of it
Thanks, I thought that article was interesting reading. I didn’t even notice though the link was broken since I’d already read the article obviously. Glad someone else pointed that out.
Indeed it sounds like Lehman Brothers were really cooking the books. I get tired of reading about these “creative accounting techniques” that let companies make it look like they are more profitable than they really are!
The fall of Lehman Brothers was what really triggered the stock market crash and the banking crisis – and really it cost many many people who invest in the stock market lots of money. My 401K still has not recovered from its 40% loss in 2008. Well, it has, but only because of money I’ve been putting into it. I know I’m by no means alone in the group of people who still haven’t made back what they lost in 2008. Well, on my personal stocks I have, but not my 401K.
I don’t remember Ernst and Young being criticized for the audit of financial statements that did not reveal the “repo 105”. Didn’t something happen with another large accounting firm when it didn’t reveal something a few years back?
Having spent my entire federal career in financial matters, I know that we were audited almost daily and none of them came out without some criticism.
Did Ernst and Young have any repercussions for their audit? I just don’t remember.
I don’t know.
Rez, what is your opinion of Paulson and Buffett’s words of wisdom?
I rely on a relative who isn’t in the financial business but who is in the market side of things to tell me whats up or down. I know MY limitations.
I haven’t posted on it yet because I haven’t had the chance to listen. I will in a bit but I need to get some other work done.
Thanks for posting those two videos, Moon. Good job. Buffet certainly has a real talent for explaining complex subjects in terms which a layman can understand. Notice his mention of monetizing the national debt (printing more currency) as one possible means of temporarily staving off a national credit crunch involving a debasement of the currency. Fed Chairman Bernanke emphatically told a House committee a couple of weeks ago that the central bank would NOT monetize the debt. So, unless somebody twists Bernanke’s arm out of its socket, it looks like we are going to have to go to Plan B, Plan C, Plan D, or whatever. We have to listen to Buffet’s warning: the current ratio of of debt to GDP is not sustainable. I hope the day does not come when international lenders begin giving us the same kind of skeptical looks I would get if, at my current level of fixed income and with my potential old geezer earnings capability, I walked into the local Lamborghini dealership.
I have always thought that the government’s response to the Wall Street emergency seemed appropriate but I didn’t consider it to be a “bailout”. I likened it more to temporary shoring of a bridge. You don’t want it to fall down and you expect some future repair.
The stimulus bill was a different matter but only because it was not targeted. If it had stayed with its intent, I would have been all for it because it had a social ramification to it–it had the potential for at least saving jobs. But when the Congress added programs that would not do anything for jobs or the economy but rather just to ratchet up some personal whim of a member of congress, I was extremely disappointed. And I am not pointing at either party in particular because in other Congresses these things happened yearly.
Earmarks are one thing but in most cases they don’t increase spending so people are looking at a fix that won’t have much effect. Mostly earmarks just say out of the overall funding level, a certain amount of dollars have to be spent for a particular project. But the funding level doesn’t change.
What would be interesting is if someone smarter than me could analyze the Federal budget and identify the items that do not meet a core objective of the Federal government. This is not to eliminate those additional items because people will disagree with what meets the core mission. But the exercise will create a dialogue of what Federal money should be spent on. And it will change back and forth depending on who has the majority but so what. We will not do as Mr. Buffet says until there is a rational discussion about these things.
Unfortunately that is a pipedream.
Someone should sometime take a look at this link. It is the Catalog of Federal Domestic Assistance. These will tell you what the Federal government is paying just in domestic assistance. Hopefully taking some time to study just this website will show you what people mean about duplicative projects and pet projects. The book is also available at libraries and if I recall correctly, it is about 4 or 5 inches thick or more. Are many of these programs helpful–I don’t doubt it but some were started to meet a specific need and might not be needed anymore but someone benefits from it so there is lobbying to keep it.
http://www.cfda.gov
Folks, we really have to wake up about our spending, energy use, and misuse of our natural resources. Like anything else, all three are limited and we miss directing the limited resources to where they will do really good work because we waste them on things that don’t make sense anymore.
Rez, I am going to stop reading and say I agree with your paragraph #1 100%. I didn’t see it as a bailout. My mentor on such matters told me that it unequivocally had to happen to keep this country out of depression. …now back to your opinion.
Wolverine, stay out of that showroom! They would laugh at me too. And yes, I listened very carefully to the entire section on monetizing.
REst sounded good too, Rez. Thanks for giving us your opinion. Its good to know that your opinion is job related. I guess you have seen the good, the bad and the ugly. I agree about the stimulus package. I think it was poorly marketed and poorly managed. It did the Democrats no favors because they got the blame for the all the bad parts of the thing. At the same time, I think it was necessary. I just wish it had been managed better.
That link just looked overpowering to me. I haven’t figured out what the dept of education does yet other than hand down unfunded mandates that cost local jurisdictions big bucks.
I don’t know either – in fact this is the first I’ve heard of that “repo 105” accounting stuff – in that article that is linked at the top. I must not have followed the Lehman Brothers thing as closely as I thought at the time – as I just don’t remember that coming up. It’s an interesting question about Ernst and Young – I don’t know if they ever were called out about allowing Lehman Brothers to use that accounting rule to make their balance sheet look better than it was.
I always thought Buffet is the one financial person out there that seems to have the ability to put things in terms which a layman can understand. He’s a really smart guy, and his advice is really easily understood, in my opinion. I only wish I had become aware of him earlier and followed his advice sooner!
It is not something for a short period of time. It does show the thousands of programs and I posted it so people would have a real sense of the scope. It is overpowering but maybe not in the sense you meant it. I would venture to say it is inconceivable in many ways. Even Jimmy Carter said that we should reduce government to 3 agencies and combine programs. Unfortunately the number of both increased under him as well.
That’s a very important point. And Buffet isn’t the only one who’s pointed that out. I know Buffet has said that sooner or later if the ratio of debt to GDP doesn’t go down, it will become a real drag on the economy, on the stock market, etc. Buffet has proven to be right far more than he has been wrong, so I think it is something that people should really think about.
Unfortunately, trying to get gov’t not to grow – that is really really hard. A lot of people like to say they will shrink the gov’t – but few really make any honest effort. And lately, the gov’t just seems to be expanding like some unstoppable force!
I also think George Bush deserves some credit for rallying the right people at the right time in Sept. 2008. He appealed to the American people in much the same way as he did after 9-11. In many ways, 2008 was just as scary, if not more so, but for a different reason.
it was Arthur Anderson – and the Enron debacle.
The BRK-B shares have been around for quite a while – recently, it was split 50 to 1 in order to finance the Burlington Northern railroad purchase. So, now a BRK-B is 1/150 of an A. The recent split increased the tradability of the shares, and allowed it to be included on the S&P 500 (in place of BNI).
Those in the know say the bailout was necessary, and I think it was – but the ways of wall street still has not changed. When you listen to Buffet and people like John Bogle (Vanguard funds), you realize how much we are all ripped off by wall street.
Even the GM bailout, which leaves a bad taste in everyone’s mouth, was necessary – imagine the financial ripple that would have happened had they been let fail – from the State of Michigan to Dudley Martin in Manassas.
A BRK-A just closed at $123,200 – I wish I had a few of them 🙂
I didn’t realize that about BRK-B – then again maybe I did and forgot. I Actually bought into it a little bit right after the split and it has done well for me – I wish I had bought more than I did.
I wish I had a few (as in just 3) of those BRK-A shares too – if I did I would be in a much better off position financially than I am!
Enron did in Arthur Anderson, and deservedly so in my opinion! They allowed Enron to get away with all those crazy “creative accounting techniques”. I read a fascinating book on the Enron fiasco and how Arthur Anderson was right there with them in allowing all that creative accounting. Some of it was over my head, as I’m an engineer and not an accountant. However, the book is really fascinating – “The Smartest Guys in the Room – The Amazing Rise and Scandalous Fall of Enron”. It was made into a documentary movie that pops up on TV every now and then – but the book is much better than the movie.
Parts of that book though get into the gory details of the creative accounting and I had to struggle to follow it – but even if you skim over those parts – it really shows how Arthur Anderson helped Enron in letting them get away with all these creative accounting techniques – a big one being the “Mark to Market” method of accounting – where somehow estimates of “potential future profits” were counted as if they happened now! Of course, that was a house of cards – and Enron wildly overestimated future profits on new contracts – and when those contracts didn’t perform to those super high expectations, they needed to continue getting new contracts and make even more wild estimates to make their “profits” keep growing. Of course, you can’t keep doing that forever, and that’s one reason why Enron eventually collapsed. But that was just one way they did creative accounting – there were many others so the “Mark to Market” method was just one of many devious schemes to cook the books as it were.
Indeed, wall street has not changed at all – some of the bailed out firms – their upper management is just as greedy and still getting paid huge bonuses, etc. Look at AIG for example. They of course claim that if they don’t pay those monster bonuses they won’t be able to attract and retain top talent. It’s because all of the top talent are super greedy, and even when they cause a company to lose money – they get huge salaries and bonuses. Must be nice! Of course, that doesn’t help the average person or average stock investor – as there really isn’t much incentive for these wall street execs to actually make their companies perform well!
Pat, actually I thought it was Arthur Anderson but didn’t want to say it without confirming it. I would have hated to malign a company by means of a faulty memory.
I have been concerned for a number of years about my perception that there can be a little revolving door between accountants and the firms they audit. I knew accountants that worked for large firms that were glad that they were given a large account because there are some times that large companies may hire them. I think my concern is the possible lack of independent judgement.
That was not intended to be an indictment of accountants and accounting firms, or either Arthur Anderson or Ernst & Young. It was a general statement about a systemic issue to me.
Pat, did you buy in to BRK-B? I grabbed a few. I don’t sit on a lot of cash so I had to do some juggling. I figured it would be a good keeper. Any out-right ownership of buffett stock seemed like a winner to me. (rather than a slice from an ETF or mutual fund)
I hope that Dodd’s bill touches on some of the Wall Street woes.
Pat, did you buy in to BRK-B? I grabbed a few. I don’t sit on a lot of cash so I had to do some juggling. I figured it would be a good keeper. Any out-right ownership of buffett stock seemed like a winner to me. (rather than a slice from an ETF or mutual fund)
I hope that Dodd’s bill touches on some of the Wall Street woes.
You knew that GR. You just forgot you knew. re: BRK-B
That was a sweet slit for sure. I couldn’t believe my eyes when I read it.
I am a long term holder of BRK-B – and bought more before the split, as I figured the BNI split would cause an uptick due to the added trading volumes.
You can think of it as a very effective mutual fund – as it invests in so many different industries and stocks. Buffet has been a good steward of BRK, as he has kept mgmt salaries low (fair), and have rewarded employees with long term stock.
I wonder how bad Lehman will tarnish E&Y?
Funny how they had to go over seas to find a legal firm to validate what they were trying to do – http://www.nytimes.com/2010/03/13/business/13lehman.html
Just another way that wall street figures they can ‘invent‘ something, and call it making ‘value‘. Legal Gambling is how I look at it (and not always legal, obvoiously).
I always considered BRK-B out of my league. I did buy once it split. bok bok bok. That is me being a chicken.
That book I mentioned details a LOT of revolving door activity between Enron and Arthur Anderson! That was one big problem – the two were so tied together in some ways that Arthur Anderson had totally lost their objectivity.
You’re right – as you and I talked about it when the split happened, and that’s when I jumped in and bought a small amount of shares. I might buy some more when I sell my Point of Woods townhouse (hopefully just 12 more days to go until that happens!).
I figure it’s the closest thing you can get to being able to invest in the mix of things Buffet invests in. But you’re right – you can almost think of it as a mutual fund or EFT overseen by Buffet.
Are there mutual funds or ETFs buried in BRK?
BRk does not invest in any mutual funds or ETF’s that I know of.
He does invest is stocks such as CocaCola, Kraft, Altria, Amex, etc. They also own companies outright – BNI is the latest, Sees candies, 70 insurance companies (Geico, General RE), Fruit of the Loom, Benjamin Moore, netjets, etc.
Very well diversified.
more on lehman – http://www.npr.org/blogs/money/2010/03/repo_105_lehmans_accounting_gi.html and the accountants and lawyers will try to protect the company by saying that this is legal and acceptable.
My son had an off the books asset once – a dirt bike he did not tell me about – that did not last long. Even with Enron with their off the books assets, and failing, Lehman, Citi, and all the others still practice this slight of hand.
Hahahahaha…Do we have a child together Pat, that we do not know about?
There was also once an off the books girlfriend who got snuck in my house.
Just to let you know, Buffet campaigned and endorsed Obama. NOT a Republican.
Cargo, you are right, he did support Obama during the last election. Mind snapped back. However, he is not a Democrat is he? Doesn’t he generally vote Republican?
Can we call him an independent?
That’s one thing I like about BRK – it is like investing in a very well diversified mutual fund or etf. I may buy some more of it soon – once I sell my townhouse hopefully near the end of the month. I must have missed that BRK bought BNI. I always knew he had a lot of investments in the insurance business though.