Wednesday, May 19, 2010

The Soccer Referee

From the Wesco 2010 meeting notes taken by The Inoculated Investor.

Charlie then changed the subject to soccer. Soccer is a game that is very competitive and it is hard to win when the other team has a player that is unusually good. If you let the players do what they want to do they will work mayhem on that great player. Therefore, the soccer referee has to limit the mayhem. This is an important role in soccer. This is the role that government should take with investment bankers. You can’t expect competitive people like them to reign themselves in. It's understandable that if you recruit these competitive people that it leads to too much aggression and ethical standards go down. Something like that has happened in investment banking.

Later, Charlie Munger added...

At the end, Lehman (LEH) was pathological. The totally crooked and crazy operators who originated mortgages and then packaged them into securities... In the end it does not work well for those who sell things that are bad for their customers.
The disturbing thing is that most of these people think it is someone else’s fault. Hitler said when he was in that bunker that it was too bad that this happened. He believed that the problem was that the German people hadn’t appreciated their leader enough.

This is similar to what people on Wall Street think now. There needs to be an adult in the room. But the government was not a good referee of mortgage originators.


You can't put a set of rules and incentives in place for the best actors and expect things to work out well. It's not surprising to find the kind of bad behavior we saw on Wall Street when a flawed system is put in place or allowed to continue.

It's not as if removing the bad actors will fix the problem...you have to change the system itself.

Adam

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