2019: Are banks and insurers over regulated?
BECKY QUICK: This question comes from Brian Gust of Grafton, Wisconsin. He’s talking about regulators and politicians. It says, “The Berkshire Hathaway investment portfolio holds several large financial institutions that are heavily regulated and are politically charged.
“Do you feel that, in some cases, the regulators and/or politicians are running the big banks instead of the CEO and the board of directors?”
CHARLIE MUNGER: Sure. (Laughter) But not too much.
WARREN BUFFETT: No, insurance has been regulated and it happens to be regulated primarily on a state basis but insurance has been regulated ever since we went into it, and it hasn’t - you know, when I looked at GEICO, it was doing 7 million of business. And, you know, it will do 30-odd billion of business now. And it’s been regulated the whole time.
And regulation can be a pain in the neck, generally, but on the other hand, we don’t want a bunch of charlatans operating in the insurance business. And insurance actually lends itself to charlatans because you get handed money and you give the other guy a promise.
And I like the fact that there is regulation in the insurance business, or the banking business. It doesn’t mean it can’t drive you crazy sometimes or anything of the sort, but those businesses should be regulated. It’s that they’re too important.
And anytime you can take other people’s money, and they go home with a promise and you go home with the money, I don’t mind a certain amount of regulation in those businesses. Charlie?
CHARLIE MUNGER: Yeah. You’re using the government’s credit because you have deposit insurance, there’s an implicit bargain. You can’t be too crazy with what you do with the money. That’s a perfectly reasonable idea.
And I absolutely believe that we should have a regulation system that involves supervision of risk-taking by banks.
It got particularly bad in the investment banks at the peak of the real estate crisis, and the behavior was bad there’s only word for the behavior and it was disgusting. And it was pretty much everybody.
Warren, you know it’s hard to think of anybody who stayed sane in that boom. They felt the other guy’s doing dumb things, I’ve got to do it, too, or I’ll be left out. What a crazy way to behave.
And so, sure, there’s some intervention, but there probably has to be.
WARREN BUFFETT: You want a Food and Drug Administration. Yeah. You’ll be unhappy with how they do it, if you’re in the business and all that, and, you know, I find any kind of regulation irritating. But nevertheless, it’s good for the system.
And actually, a number of regulators, you know, I would say that they’ve really been quite sensible about regulation. But you don’t feel that way when you’re being told how to run your business.
But as Charlie says, you wouldn’t want to be a bank that ran in an unregulated system where anybody could come in and do all kinds of things that would actually have consequences that drew you into the problems that they created themselves.
We had the Wild West in banking long ago, and it produced a lot of problems in the 19th century.