If you think stronger regulation is a good answer, heed Buffett

Warren Buffett gave a three-hour interview in August. Here's an interesting bit from the transcript:

QUICK: If you imagine where things will go with Fannie and Freddie, and you think about the regulators, where were the regulators for what was happening, and can something like this be prevented from happening again?

Mr. BUFFETT: Well, it's really an incredible case study in regulation
because something called OFHEO was set up in 1992 by Congress, and the sole job of OFHEO was to watch over Fannie and Freddie, someone to watch over them. And they were there to evaluate the soundness and the accounting and all of that. Two companies were all they had to regulate. OFHEO has over 200 employees now. They have a budget now that's $65 million a year, and all they have to do is look at two companies. I mean, you know, I look at more than two companies.

QUICK: Mm-hmm.

Mr. BUFFETT: And they sat there, made reports to the Congress, you can get them on the Internet, every year. And, in fact, they reported to Sarbanes and Oxley every year. And they went--wrote 100 page reports, and they said, 'We've looked at these people and their standards are fine and their directors are fine and everything was fine.' And then all of a sudden you had two of the greatest accounting misstatements in history. You had all kinds of management malfeasance, and it all came out. And, of course, the classic thing was that after it all came out, OFHEO wrote a 350--340 page report examining what went wrong, and they blamed the management, they blamed the directors, they blamed the audit committee. They didn't have a word in there about themselves, and they're the ones that 200 people were going to work every day with just two companies to think about. It just shows the problems of regulation.

QUICK: That sounds like an argument against regulation, though. Is that what you're saying?

Mr. BUFFETT: It's an argument explaining--it's an argument that managing complex financial institutions where the management wants to deceive you can be very, very difficult.

Comments

[kyle8]

But the reason that the regulators were not able to do anything with Fannie and Freddie is because they were put in place NOT to regulate. They were put in place to rubber stamp democratic party shennanigans while they used those companies as slush funds.

No amount of regulation, nor lack of regulation will be able to overcome a corrupt congress. They would have continued to get away with it had the so called reforms not caught up with the housing market. Mark to Market accounting, put into place after the Dot com bubble, is the main culprit in destroying the real estate holding companies.

Buffet is a horrible jackass because he sees all this crap and yet he remains a big supporter of the party primarily responsible for all this garbage. If you believe that more government regulation is not a good thing then how can you still be a big Democrat?

[Andrew Abraham]

We have been discussing on our forum Buffetts purchase of Goldman and now GE... I think he is following in the steps of Ben Graham...What am I missing...

[TheBigHenry]

"Buffet is a horrible jackass ..."

... which, presumably, accounts for his being a multi-billionaire. But, perhaps "opportunist" would better explain his politics, for he is surely the greatest investor and philanthropist the world has ever seen (no mean feat for a jackass).

[Metapundit Edgy]

It sounds more like an argument for improving the quality of regulation, don't you think? I don't think Buffet is presenting any argument that FNM/FRE would have done better if OFHEO were not there at all.

[Enginerd]

The basic point is that regulation is only as good as the regulators. I'm guessing the employees were salaried, and didn't have any incentive-based pay. Pretty likely that they could qualify for higher-paying jobs at FNM/FRE after a few years, and why piss off your future bosses? Same problem with all financial regulation.

Problem could be mitigated if regulators were paid bonuses when they found a problem. This would provide a counter-incentive. It would encourage companies to be scrupulously honest, because they know that the regulators would be dying to find any flaw they could.

[superamerican]

republicans/Conservatives have a long road to get back what they have given away to a coldly calculating Left. While we are busily building companies, creating jobs and wealth, the Left are busily spending that wealth to take down the free-enterprise system. Bush was the worst president for the conservative philosophy. What to do?

periodictablet.blogspot.com

[superamerican]

The Left comes up with pithy, misleading statements that grab America. "The rich get richer." "The top 5% have 90% of the wealth." "Business is bad." "I'll increase taxes for the richest 5% and cut taxes for the other 95%" "The middle class is losing out to the rich." Things like that are not immediately challenged. Republicans see to be clueless as to what's happening.

periodictablet.blogspot.com

[William Whitfield, Jr.]

Whatever happened to the Biblical admonition to work to get gain in order to help others. Now, it is to get elected to rape those who are working in order to get gain to help yourself. Most politicians are hypocritical. They have no guiding principle, except expediency to get elected again, to enrich themselves.

[Bill]

The regulators did have a hearing in 2003 to report irregulaties and problems but Barney Franks and Maxine Waters told them that everything was just fine. They went so far as to say the problem was with the regulators when, in fact, the regulators were just the messengers. The regulators did their job but the Democrats chose to ignore them.

[Ana MariaTeigeler]

I am sooo disgusted with this crisis! Greed and corruption, for the pleasure of money, and power should be punished,especially when perpetrated by taxpayer's money in the hands of predatory politicians.

We, the people, have the right to know these perpetrators by name, regardless of their position in Congress.

We need a recovery plan, but we need accountability too. It hurts me to think that AJ,my son, is risking his life in Iraq to protect our freedoms, and way of life, in a country where predatory politicians knit their web of deceit, greed and lies.

I'd spent some hours researching on this subject, when I saw members of Congress putting blame on Wall Street and on each other. Something was not making sense to me... So, I decided that it was time to look for the truth..What a "reality check" this had been for me! Moreover, it was disgraceful to watch Pelosi and Barney blaming the Republicans for the crisis. FOR CRYING OUT LOUD! What a pair of idiots and hypocrits...

McCain, as candidate for POTUS, has the responsability of explaining these practices in detail. Americans don't know the details of these predatory practices whose endgame resulted in the economic debacle of the century.

Politicians are blaming Wall Street conveniently. Americans need to know the real truth.

Now, it's up to McCain to do this in a clear, simple, and concise way. We the people demand action and accountability. It's about darn time!!!!!

[T C Sommer]

Buffett points out you can't regulate fantasy into capitalism and then blame capitalism for the failure.

Deregulate back to reality and stay there, let the greed of wall street work FOR us by demanding they act as if they're gambling with their own money at risk.

Fannie and Freddie inflated this balloon and asked wall street's help in keeping it afloat, and they did, but to blame wall street for not deciding enough is enough is silly. Wall street didn't ask for the distorted values produced by Fannie and Freddie, they did however, have to try to make it work.

De-regulate, De- regulate, De- regulate.

[JSteale]

I too started doing my own research when this thing started, and have followed it in the news. Nothing could have shocked me more than to hear Palin agree with Biden that Wall St. greed was to blame. I have followed the trail from the passage of the CRA in 1977 right to present clearly showing that the underlying problem was started, nourished, and protected by Democrat politicians and groups like ACORN that wanted to provide home ownership to the "underclass" without regard to their financial qualifications. It may be arguable that they never intended it to get out of hand, but the principles that enabled this to occur are directly from the liberal left wing playbook. Equality of opportunity is not enough; equality of outcome is required regardless of consequences.

The most amazing thing to me is that if I, as a average citizen can understand what happened, how is it possible that the Republican party is unaware of it? If they are aware of it, why is it not being proclaimed from high and low by every means possible. This has enormous consequences for the country's future and we are hearing nothing from McCain /Palin about it. WHY? Why are the perpetrators of this financial catastrophe being allowed to misdirect blame and simultaneously proclaim themselves the saviors. Have the Republicans become beaten dogs that can only cower at the heels of their liberal masters? It sure seems that way.

If I were McCain I would hold a press conference and lay it all out and then proclaim that I will only serve for 1 term if elected. In doing so, he would add teeth to his promise to leave no stone unturned in ridding Washington of the snakes that have been lurking there for decades... Further more I would announce that as of a date certain, after my inauguration, I will be sending the justice department after every crooked politician, bureaucrat, and lobbyist in Washington that still holds office as of that date. If McCain did this he would have credibility regarding his promises because by vowing not to run for re-election he is announcing that will do what ever needs to be done and let the chips fall where they may.His entire reputation would be based on what he accomplishes in 4 years with no effort spent toward being re-elected. We will see just how much of a maverick McCain really is? Is he willing to do something no other Presidential candidate has ever done?

[fjs]

thieves who steal and get caught should go to jail, not be rewarded with keeping their jobs, much less running our country or should i say ruining our country. we need to fire each and every one of them.good luck to all of us / especially we the working shmucks, the sucker american tax payer.

[Ray]

I embrace the idea of McCain going in there for one election period only...and putting the crooks and assholes in jail, no matter if they are Congressmen and or Senators. If he wants to be elected that's what he'll have to do...otherwise, the bad guys an the democrats will rain supreme for the next 4-8 years.
If McCain doesn't go for broke, he'll never be elected. If he doesn't do, or commit to doing something like this he will just be one more loser, in every sense of the word.
RXN

[mlm]

There is something massive being covered up in Washington. They are all struggling to point the finger away from themselves. To have a government agency of 200 people miss the corruption going on in FNM/FRE seems sadly typical of our system these days. But to have Buffet say that it just goes to show you how hard it is to regulate financial institutions where management wants to deceive you is not the whole story... these are government sponsored institutions being watched over by another government agency. Obviously there is some crossover there and the people doing the watching over are not being deceived entirely, they are at some level coconspirators.

I like the idea of McCain and Palin opting for the one term. We need someone to just clean house but I doubt that is going to happen. I think the american people should start to vote out every sitting politician. It may take years.... but Rome wasn't built in a day.

[Dan Brown]

What you have said is so "RIGHT-ON". We (the American people) are so frustrated, because we feel helpless as individuals to be able to have any effect where our government is concerned because it is, for the most part, being run by "ME FIRST" people. And it seems that no matter what we say we want, or how we try to get some common-sense things done, or ridiculous things stopped, we are not listened to ... we are ignored! I am not a "conspiricy" type person, but I do believe that there are some people in Washington who are against goodness and positive action and are against our nation in general... so much so that I personally label them as TRAITORS. Nancy Pelosi is one of them, Harry Reid is another. How those JERKS got elected to their present posts is a true mystery to me. Luckily we got rid of Tom Dashell, but he's still around trying to make trouble. I hope John McCain gets tough between now and election day and exposes the EMPTY
SUIT that's opposing him for what and who he really is. If Obama is elected, the United States is in deep dark trouble, the likes of which we have never seen before.

[mike mcginnis]

we are in deep trouble if obama is elected i have been a democrate all my life but cant vote for obama

[Rena]

I agree with everything all of you have said, something should be done!!!!! How do we get it done? Today it seems so much voter fraud is going on (the main topic of the news today) that it seems our vote no longer counts. Maybe the internet is the answer, if all of us would flood the McCain campaign website with emails or something we might get it done in time to make a difference NOW!!!!!!!!!!!!!!!! WE THE PEOPLE HAVE TO TAKE MATTERS INTO OUR HANDS We can no longer sit idly by, WE HAVE A VOICE LET IT BE HEARD. Lets join together!!!!!!!!! Lets post ideas and join our voices together, I am a mad grandmother of 6 in Texas