But the world would be better off if JPMorgan didn't run a gambling casino alongside a legitimate business. I take my hat off to Dimon, but I'd take away his derivative book in a second.
Why is it a casino in JPMorgan's case, but not Goldman's? Is there a difference between the two, other than that the speaker is invested in one and not the other?
I ask because Buffett and Munger have a mammoth interest in this subject (I was going to say "conflict of interest", but perhaps there's no conflict) and in the public statements I've seen neither has even mentioned that, let alone credibly addressed it. I find that disappointing. Like a lot of people, I've long looked to them as examples of business leaders who care about good beyond their personal profit and whose statements could therefore be trusted more than usual. But everything they've said (that I've seen) about the financial crisis is easily explained with reference to one principle, without Occam even breaking a sweat.
I took his comments differently; it seems like he's talking more along the lines of Glass-Steagall. I suspect that Munger doesn't have a problem with the casino (trading firm) itself but the fact that it is running alongside a traditional bank. The problem is, many people see JPM as a bank, not a trading firm, and mistakenly treat is as a bank when, in fact, it's taking more risks than a bank traditionally would.
A small side note regarding the "gambling casino" comparison mentioned in the article, I think this is not comparable especially that casinos are much more controlled than a part of the financial activities.
In the article : "Capitalism should not resemble a vast gambling hall. It shouldn't look like a casino."
I don't think so. I would prefer to have clear rules like the one imposed to a casino than the never ending cycle of creating "model" in the financial activities that no one can't really understand :
In other words, comparing casino and some financial activities is not a valid comparison. I mean sometime is better to invest in a casino business than in a financial product....
His saying that Goldman was just playing with the rulebook Congress gave them is disingenuous. Goldman's lobbyists wrote the rulebook. The financial industry -- and Goldman in particular -- have been playing congress like a fiddle for decades now. They had the rules that led to the collapse because they wanted those rules, because that would make them the most short-term money.
I think it's more than just surviving and coming out on top. They came out on top because they have an extremely short term focus: buy stuff, package it, flip it, move on. That's their business model and it allowed them to change direction when the crisis it. In contrast, companies with a focus on long term investments were crushed (e.g., WaMu).
This goes against the dogma that "those short sighted companies, aiming for profits in the next quarter, now look at them." Therefore, Goldman must have cheated.
Munger and Buffett are long-term investors. They have nothing against short-term positions, so long as those positions aren't confused with investments.
Oh, the story with the bunker is a bit of a metaphor. Hitler ordered scorched earth tactics at the end of the war, ostensibly because this should have made it harder for the allies. But in his ideological point of view, this was because he thought the Germans weren't worth it anymore.
Oh, I see, you meant knowledgeable about the general situation, not about what Hitler said as such. I think you got downvoted (not by me, fwiw) for appearing to take the quote literally.
As for the general situation, that's quite interesting. Shows how much Hitler cared about the German people.
There's also a direct quote somewhere from Hitler, where he says so outright. It was written at the end of the war and meant to be kept secret. (Something about how the `Slavic races have proved superior, and the Germans don't deserve it anymore.')
I found a source, it was apparently in a chat he had with Albert Speer:
Ein Volk, so Adolf Hitler in einem Gespräch mit Albert Speer, das nicht bereit sei, "sich für die Selbsterhaltung einzusetzen", müsse "verschwinden... Es sei nicht notwendig, auf die Grundlagen, die das Volk zum primitivsten Weiterleben braucht, Rücksicht zu nehmen. Im Gegenteil sei es besser, selbst diese Dinge zu zerstören. Denn das Volk hätte sich als das schwächere erweisen, und dem stärkeren Ostvolk gehöre dann ausschließlich die Zukunft. Was nach dem Kampf noch übrigbleibt, seien ohnehin die Minderwertigen, denn die Guten seien gefallen". (http://www.mahnung-gegen-rechts.de/pages/staedte/Heilbronn/p...)
> We were on the edge of something that could have taken civilization as we know it to the edge of ruin.
Banks alone can't take civilization down because they don't produce wealth. As long as there are factories, services, knowledgeable, skilled people doing useful things, the civilization will stand OK with or without the rotten banking system.
Failing banks, on the other hand, might have taken down Berkshire Hathaway, I suppose, but that's not the entire civilization.
> Very high IQ people can be completely useless
... in the eyes of very low IQ people.
> I see no reason to think Goldman misbehaved in some horrible fashion. Everyone was doing it, and it's only natural to increase your moneymaking activities when you can do so legally.
Should I really comment on this nonsense? Goldman was doing what everyone was doing without much thinking about the consequences, and they didn't misbehave? Actually he responds to himself a bit later:
> You have to be able to keep your head on when everyone else is losing theirs.
> Banks alone can't take civilization down because they don't produce wealth. As long as there are factories, services, knowledgeable, skilled people doing useful things, the civilization will stand OK with or without the rotten banking system.
While it is true, banks don't produce wealth, they are the lubrication that keeps the machinery working smoothly. Manufacturing has to buy raw materials, add value, and then sell their product. The time that lies between "buy" and "sell" is tough without banks.
What makes a bank a bank nowadays is money lending rather than deposits and transfers. Some say money lending itself creates value, but I don't agree. Oversimplified, it can be said that because money is nothing, then money lending is even more so.
But in any case I was talking about the "rotten" banking system with corrupt lending practices rather than about banking in general.
I agree with you here. The problem was not the mathematical models that were developed, the problem was that people don't know what risk means. Traders have the "it won't happen to me" attitude, so they go for the big gains. When everyone in the industry goes for the big gains, all paid for with credit from big gains that "will eventually" materialize, the industry has a problem. (An example is credit default swaps. If the bank that wrote you the swap fails, you have taken on more risk than you were expecting. When a bunch of banks fail at once, then all the banks take on additional risk, and also fail.)
Anyway, this was all predicted, but the shareholders of financial institutions wanted the gains that necessitated heavy risk-taking. And they reaped what they sowed. You can't blame the quants for this one...
But the world would be better off if JPMorgan didn't run a gambling casino alongside a legitimate business. I take my hat off to Dimon, but I'd take away his derivative book in a second.
Why is it a casino in JPMorgan's case, but not Goldman's? Is there a difference between the two, other than that the speaker is invested in one and not the other?
I ask because Buffett and Munger have a mammoth interest in this subject (I was going to say "conflict of interest", but perhaps there's no conflict) and in the public statements I've seen neither has even mentioned that, let alone credibly addressed it. I find that disappointing. Like a lot of people, I've long looked to them as examples of business leaders who care about good beyond their personal profit and whose statements could therefore be trusted more than usual. But everything they've said (that I've seen) about the financial crisis is easily explained with reference to one principle, without Occam even breaking a sweat.