Charlie Munger on Bankers, HFT, Federal Reserve and Credit Default Swaps; Tour Through Warren Buffett's Office

source: CNBC.com
Charlie Munger, Berkshire Hathaway's vice chairman (Warren Buffett's right-hand man), told CNBC's Becky Quick yesterday that "you can't trust bankers to govern themselves." He said "they are are like heroin addicts." Ha. Munger also said in 2011 that "we'd be better off if we downsized the whole financial sector by about 80%" (via CNN Money). So you know his stance on 'too-big-to-fail'.

Regarding the stock market and Federal Reserve, Charlie Munger essentially said the Fed (via ZIRP and QE) was juicing the stock market to new highs (not from the official transcript).

"It's undoubtedly been helped by the fact that interest rates are so low. One of the reasons that interest rates are so low is people at the Federal Reserve system actually want to inflate asset values to some extent."
"They have surprised everybody by how vigorous they are willing to be."
"It's sort of uncharted territory. If you're going to solve your economic problems by printing money and spending it, that is a little unsettling. It clearly works to some extent. If you could do it in a moderate way, you're whole civilization could work better."
"I'm saying there comes a place where printing money and spending it is counterproductive. And generally, when something is very awful, the consequences, I tend to stay a long way away. These modern economics think they know exactly when to pull back and it's perfectly safe. I don't believe it."

Lastly, Munger was not impressed with high frequency trading (HFT) (via CNBC's transcript).

"I think it is very stupid to allow a system to evolve where half of the trading is a bunch of short term people trying to get information one millionth of a nanosecond ahead of somebody else" 
"It's legalized front-running. I think it is basically evil and I don't think it should have ever been allowed to reach the size that it did"
"Why should all of us pay a little group of people to engage in legalized front-running of our orders?"

Watch the full interview below via CNBC.com.


I remember when Charlie Munger told Bloomberg in early 2009 that credit default swaps (opaque, illiquid OTC credit derivatives invented by bankers in the 1990s as a way to hedge credit portfolios), should be banned after they contributed to the financial meltdown in 2008.  Here are quotes via Bloomberg.com:

“If I were the governor of the world, I would eliminate it entirely -- 100 percent,” Munger said in a Bloomberg Television interview today. “That’s the best solution. It isn’t as though the economic world didn’t function quite well without it, and it isn’t as though what has happened has been so wonderfully desirable that we should logically want more of it.”
“The whole mass of incentives created is quite counterproductive,” Munger said. Buyers of the swaps get a “vested interest in the destruction of some business.”

It's funny because Berkshire Hathaway plays in the credit default swap market (essentially bond insurance) and they use bankers all the time for their investments. Warren Buffett recently gave a tele-tour through his office at Berkshire Hathaway on CBS. Here it is.


I found another tour of his office on CNN Money's Youtube channel.

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