Last week’s J.P. Morgan $2 billion-plus trading disaster brings back memories of Too Big to Fail and Financial Tricks Played by the Big Boys, a.k.a., the 2008 debacle. Of course, in this case, the “big boys” are the same Wall Street wizards who are more than willing to take huge risks for big rewards. It should be noted that the risks are virtually always taken with OPM — other people’s money. The rewards, which often seem to come regardless of the outcomes, are paid by shareholders of the financial institution, meaning that it’s money they are not paid in the form of dividends or value.
The trouble this time is that the memory of 2008 is still quite fresh in everyone’s mind, and the aftereffects are still affecting the economy every day, at least on the citizens’ side of the ledger. On the other hand, on the bankers’ side, it is a good political time to make such a confession, since the sitting president probably won’t want to upset the apple cart this close to an election. Not only would the bankers be unhappy; if pressed too hard, they might not make campaign donations.
This faux pas can’t be great for the other side — Mr. Romney — since he is closely linked to the world of finance and capital markets. If he antagonizes the bankers, his campaign finances might also suffer. So, it’s almost an impasse, right? The president’s treasury secretary, Tim Geithner, is famous for not interfering in banking and capital markets, and Mitt Romney probably won’t want to cause ripples, at least not about the free market economy. Score: Bankers, 1; U.S. Citizens, 0. May I have an amen?
My wife and I are back from Omaha. You gotta love Messrs. Buffett and Munger, who are not only keenly intelligent but also both have excellent senses of humor. One has the sense impression that, at the moment, at around $82, Berkshire B shares are a steal. One former Morningstar analyst values the stock above $100 per share. That’s quite a discount. (As per my disclosure, I do hold shares of Berkshire and have done so for years.)
Have a wonderful week and consider buying a few shares of BRK.B and joining us all at the meeting next May.