2010: What are your thoughts on financial reform?
AUDIENCE MEMBER: Good morning, Mr. Buffett and Mr. Munger. My name is Guy Pope and I’m from Portland, Oregon.
I’m curious about your thoughts on financial reform that Congress is currently working on. Specifically, what are the good ideas that you think are out there that should be included in the bill, and what are the bad ideas that you think should be left out?
WARREN BUFFETT: Charlie, it’s 1,550 pages so you take the first 1,500, I’ll take the last 50 pages. (Laughter)
CHARLIE MUNGER: Well, I don’t think anybody in America right now, including the people in Congress, know what’s going to happen. And my guess is that most of them have not read the bill, either.
So I think we’re all in the doubt — (applause) — as to what’s going to happen.
To me, one thing is perfectly clear and that is that our governmental system, which regulates the big investment banks, was so permissive and the investment banking culture had a nature, that together helped arrange that, under stress, every big investment bank except Goldman Sachs was going to go blooey.
A system that likely to go blooey, that is so important to the country, should be changed so it’s less permissive in what it allows the banks and the investment banks to do. And people are thinking about that right now.
The banks and investment banks just hate the idea of losing investment flexibility. For instance, on maintaining the biggest derivative book in the world at, say, JPMorgan Chase.
They hate giving that stuff up. That doesn’t mean that it’s good for the country that they be allowed to continue to do as they have done.
WARREN BUFFETT: Based on what you know about the bill, and I know you haven’t read all 1,550 pages, but would you vote for it today or not?
CHARLIE MUNGER: I simply don’t know enough about it. I know what I would do if I were the benevolent despot of America. And I would make Paul Volcker look like a sissy. (Laughter and applause)
WARREN BUFFETT: You want to get more specific than that? That’s quite a word picture. (Laughs)
Want to get more specific, Charlie?
CHARLIE MUNGER: Well, I would reduce the activities that are permitted. If you’re de facto using the government’s credit to help your business run, you shouldn’t have a bunch of financial statements in the trillions, which you can’t really understand even if you’re a partner in the business.
This is crazy. The complexity that has come into the system is quite counterproductive. And of course, the people have proven they can’t really control it.
So I think what we need is a new version of Glass-Steagall that drastically limits what — (applause) — what both commercial banks and investment banks are allowed to do.
They should have a much simpler and safer mode of business.
When we owned a savings and loan association, it had a very restricted repertoire that it could use. And of course, it had government credit for its deposits.
And by and large, as long as the repertoire was quite limited, the savings and loans stayed out of trouble. But you give human beings the flexibility the do any damn thing they please with absolutely unlimited credit under the repo system and other systems, and they will go plum crazy. And of course, they did.