Blog Archives

Charlie Munger Quotes

Charlie Munger quotes are among the best zingers to Wall Street in existence. Known as Warren Buffett’s folksy business partner, Munger to has a way with words that makes him fun to listen to. Here are a few that stand out to us.

“The major non-investment banks have by and large misbehaved in consumer lending. They have had a marketing model which is the equivalent of a liquor company that seeks out the people very susceptible to alcoholism, and tries to suck them into alcoholism.” source

“To say that derivative accounting is a sewer is an insult to sewage.” source

“The derivatives traders have tended to rook their own customers. It’s not a pretty sight. It’s a dirty business.” source

***

While it’s unfortunate that Munger and Buffett invest in some of the very products and banks they denigrate, we strongly endorse the sentiments in the quotes above.

For more on derivatives, see our derivatives timeline and our post “What Are Derivatives, and Why Are They Dangerous?”

Debtris: One-Minute Video Shows Why Wall Street Reform Is Crucial

At exactly 0:56 (wait for it) in this one-minute video called Debtris you’ll see what’s so crucial about Wall Street reform.

It boils down to this. The recent credit crisis that was sparked largely by reckless activity on Wall Street cost the world $12 trillion, and we haven’t sufficiently protected ourselves against a repeat.

Can you imagine what it will look like if we stack another credit crisis on top of the last one before we fully recover?

This is why we must reform Wall Street quickly and decisively.

Mike Lux of Democracy Partners explains why:

“The reason Wall Street activists are so obsessed with the lack of toughness toward Wall Street is that Wall Street is ground zero for the rest of the problems in our economy. These monstrously huge mega-banks completely dominate our economy, siphoning off money that might otherwise go into productive uses in the mainstreet economy so that the big bankers can keep speculating away. And when they screw up in ways that hurt the rest of us, even when they blatantly violate the law, the fact that they are never seriously punished means they have no incentive to stop.”

We must demand that Wall Street stop putting world markets at risk for a chance to reap big bonuses, or we’ll all continue to be hammered by their actions.

http://www.toobighasfailed.org

Tom Donilon Embodies the Collusion Between Washington and Wall Street

Tom Donilon and the Revolving Door

When people discuss the financial crisis in the mainstream news they typically fall neatly into the left vs. right paradigm. The left says Fannie Mae wasn’t the problem; Wall Street was the problem. And the right says the opposite: the problem wasn’t Wall Street; it was Fannie Mae.

In reality, both Fannie Mae and Wall Street contributed to the crisis. As detailed in the book Reckless Endangerment (on our reading list), Fannie Mae has long been filled with corruption, funneling money toward big campaign contributions, colluding directly with Wall Street, and carving out giant bonuses for their executives—all largely because they had the implicit backing of the federal government. What’s more, Fannie Mae’s cost to taxpayers in the form of bailouts after the crisis has been enormous.

It just doesn’t make sense to view the financial crisis as an issue of left vs. right. The collusion between Washington and Wall Street transcends party politics, and so should we.

This leads us to Tom Donilon, a symbol of this collusion. In a well researched piece from the Free Beacon, we see that Donilon lobbied for less oversight over Fannie Mae during a time when the firm participated in “extensive financial fraud,” including misreporting earnings in order to allow their executives to receive bigger bonuses.

After receiving $1.8M in bonuses himself from Fannie Mae, Donilon went on to advise Citigroup and Goldman Sachs as a lawyer at O’Melveny & Myers, earning another $3.9M before returning as a Washington insider. In 2011, he received over $12,000 a month in a Fannie Mae pension, and he likely still receives these monthly payments, even though he’s only 57 and even though Fannie Mae, again, has received enormous taxpayer bailouts (and still hasn’t repaid the money, in part because they’re still giving fat pensions to people like Donilon).

People who only blame Wall Street or only blame Fannie Mae for the financial crisis aren’t seeing the big picture. The key problem here is that the collusion between Washington and Wall Street is terrifyingly rampant. SwitchYourBank.org aims to tear power away from Wall Street in an effort to do somethingworthwhile, but we don’t by any means excuse Washington’s actions in the mess. In fact, we recognize that without reform in Washington, reform on Wall Street will be impossible. To achieve the reform we want, we need to call out the cronyism embodied in people like Donilon and help end the revolving door between Wall Street and Washington.

See more about the revolving door.
See more about why we need Wall Street reform.

The Bankers’ New Clothes Quote

Anat Admati, economics professor at Stanford, and Martin Hellwig, director at the Max Planck Institute, wrote an forthcoming book called The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It. The preface is available online, and we’ve added the book to our queue after reading this quote from it:

“Do not believe those who tell you that things are better now than they had been prior to the financial crisis of 2007–2009 and that we have a safer system that is getting even better as reforms are put in place. Today’s banking system, even with proposed reforms, is as dangerous and fragile as the system that brought us the recent crisis.

But this situation can change.”

It’s hard to sum up what is motivating SwitchYourBank.org more clearly than that quote does. We agree that the financial system is still full of risk, and we agree that simple solutions (not thousands of pages of detailed rules, riddled with loopholes) can help the situation.

Importantly, the preface claims that the book aims to reach a public audience, with the authors claiming that “you do not need any background in economics, finance, or quantitative fields to read and understand this book.” Our theory and hope is that if more of the public understands these issues, they’ll make better voting decisions, and better decisions about where they bank.

In sum, the book looks promising. After we read it, we’ll review it and add it to our growing reading list.

Flickr image from othermore