Munger on financial innovation

by PlanMaestro

It all started with an asinine bubble. The cause was a combination of megalomania, stupidity, insanity, and I would say evil on the part of bankers and mortgage brokers.

And it was widespread. Alan Greenspan was a smart guy, but he totally overdosed on Ayn Rand when he was young. You can’t give bankers the freedom to create gambling games.

Clever derivatives broke dozens of companies. It killed them. Bankrupt. We don’t need these kinds of innovation in finance. It’s OK to be boring in finance. What we want is innovation in widgets.

I bet Richard Fuld doesn’t have an ounce of contrition. It’s just megalomania. When it’s like that, you need rules to prevent catastrophe. When banks are borrowing the government’s credit rating, you need rules to prevent stupid things.

I don’t want to sell credit to people who are going to hurt themselves with it. You should only sell products that are good for the people who use them. Some disagree with this, but I know I’m right. That is to say, you’re talking to a Republican who admires Elizabeth Warren.

Fancy computers are engaging in legalized front-running. The profits are clearly coming from the rest of us — our college endowments and our pensions. Why is this legal? What the hell is the government thinking? It’s like letting rats into a restaurant.

None of us should fall for the idea that this was constructive capitalism. In the 1920s they called it bucket shops just the name tells you it’s bad and they eventually made it illegal, and rightly so. They should do the same this time.

Charlie Munger, Morning with Charlie 2011