Saturday, March 26, 2016
A lot to lose.............................
Continuing the excerpts from Warren Buffett's testimony before the Financial Crisis Inquiry Commission:
Mr. Seefer: And I understand that. I'm just asking in your opinion, is the answer to the "too big to fail" problem, make them hold more cash?
Mr. Buffett: That - the answer is - and it isn't a perfect answer - you will always have institutions too big to fail, and sometime they will fail in the next hundred years.
But you will have fewer failures if the person on top, and the board of directors who select that person and who set the terms of his or her employment, if they have a lot to lose.
And in this particular instance, the shareholders have gotten - they probably - it's well over half a trillion, and it may be approaching a trillion - they've suffered the loses, society has suffered the loses from all the disruptions they are setting in place. Directors and the CEO.
The CEOs, you know, they only have 80% of what he had before, but they're all well, wealthy, beyond the dreams of most Americans. The directors, you know, have collected their $200,000 or $300,000 a year, and they're protected by insurance.
And so the people that are in a position to make decisions day-to-day as to trading off the safety of the institution verses the chance for improving quarterly earnings or something of the sort, the need different incentives, in my view, and so far, nothing has been done on that. ...
But I think the best thing, again, if you're worrying about the Bear Stearnses of the world is to have an arrangement in place so that if they ever have to go to the federal government for help, that the CEO and his spouse come away with nothing. And I think it can be done, you know. And I think if society is required to step in an, you know, come up with all kinds of things - disrupt, you know, the lives of millions of Americans in various ways, I think there ought to be a lot of downside...This would get their attention...
Mr. Seefer: Well, then let me ask you this then: if the CEOs and their spouse -
Mr. Buffett: Yes.
Mr. Seefer: - unlucky marriage there - you know, have to give back every penny -
Mr. Buffett: Maybe the spouse would do better policing than the regulator.