Mittwoch, 17. August 2011

Two Views on America - George F. Will versus Warren Buffett

Two extraordinary Charlie-Rose-interviews were aired on Bloomberg's, one with Warren Buffett and the other one with George F. Will.

Below is a reaction to these interviews addressed to George F. Will.

Dear Mr. Will,

I had the unusual intellectual pleasure today to watch here in Austria both interviews with Charlie Rose, Warren Buffett’s and yours (in that sequence). Since I have been reading your intellectually supreme publications for about 4 decades and knowing that Buffett is mega-rich, I would have expected that it would be thumbs up on you (the sensible conservative voice of America) instead of Buffett (the mega-rich). I want to explain to you why it was the opposite.

My major at Harvard was comparative government, so I do have an understanding and sympathy for your intellectual defense of Madison. Yes, the USofA needs to return to the thinking of her founders (and perhaps read up on de Tocqueville’s analysis of what America is all about). But that should not prevent the USofA, nor you, from recognizing reality.

Whether it is de Tocqueville, Madison or whoever, no model of government can ever function as designed if the value structure of its citizens is out of whack. I grant you that the marvels of the US constitution are the necessary safeguards to make sure that, eventually, self-correction will occur, and this is why I am such an admirer of American society. However…

My first career (1972-88) was with the Continental Bank of Chicago, a bank which was AAA-rated and which in early 1982 was voted the best bank of a decade. It had fantastic controls (a fantastic “constitution”). When it celebrated its 125th anniversary in the spring of 1982, media comments raved about the sound and solid business philosophy which the bank pursued. And in the first week of July 1982, the bank was essentially bankrupt.

The business model and the controls of 1982 were no different from the business model and controls of the year I joined, 1972. The value structure of the people had changed. When I joined CINB in 1972, banking was a serious business. There was an unwritten code of conduct to act responsibly with OPM (other people’s money). I remember my seniors in Chicago, from the CEO down, hammering in phrases like “don’t give anyone the bank’s money if you wouldn’t also give him your own money”; “know the character of your borrower”; “we have 4 major constituencies (the customers, the shareholders, the employees and the society which allows us to do business successfully) and we have to respect all 4 equally”; “hard work and clean living is the basis for success”; etc., etc. Within 10 years, this value structure had turned upside down. All of a sudden, profits had become the name of the game regardless where those profits came from. We were now doing deals which the bank wouldn’t have touched with a ten-foot pole 10 years earlier.

In the first week of July 1982, it turned out that CINB had lent over 1 billion USD to oil speculators in Oklahoma who, when visiting the bank, were known to have drunk beer out of their boots. The bank thought it had made tons of profits and then it turned out that those ficticious profits were 100% losses of capital (should not have been a total surprise when you are dealing with people who drink beer out of their boots…). When the bank’s Senior Auditor was asked whether he had ever brought his severe concerns to management’s attention, he replied that he was once, at the urinal, standing next to the Executive VP and mentioned to him that he had a lot of eggs in one basket. The Executive VP later said to investigators that he normally did not discuss business matters at the urinal. So much for the change in value structures. In the value structure of the early 1970s, Gordon Gekko would have been fired on the spot. A decade later, all large financial institutions were looking to hire Gordon Gekko’s (and I don’t recall George F. Will writing about the fact that this was not good!).

It is the absolutely incredible change of value structures on the part of Americans during the last 3 decades or so which I fail to understand. Buffett talked a lot about value structures in his interview; you did not.

During the last 20 years that I have been back in Austria, I have very often been the lone wolf when I defended America and what she stands for. But there was one situation where I was caught completely off-guard: a small dinner party with rather elite people in Munich. Once again, I was arguing my defense of America when a  highly educated and sophisticated lady (an assistant to the then Governor of Bavaria) asked me in a charming voice: “Mr. Kastner, what is your opinion about a society which is the wealthiest society in the world but which does not make sure that all of its citizens have access to health insurance?”

You would have had a better answer than I had. I rumbled about all those things that Americans really don’t want a government which takes care of all individuals; etc., etc. But I was embarrassed because she was right!

Nevertheless, I could still live with the reality that the plumbing Joe’s don’t care about such things. That they prefer to be left alone and take care of their own problems.

What I cannot accept is that the principle of fairness seems to have withered away in American society. During my time as an exchange student in Florida and later during my studies at Harvard, it was the seemingly unlimited belief in the principle of fairness on the part of Americans which turned me into a fan of the USofA. Buffett talked about fairness a number of times; you never mentioned the word once. My seniors at the CINB talked about fairness frequently but they didn’t talk about it in a naïve way. They would say: “Look, no one will ever promise you that life will always be fair to you but we expect you to always bear in mind how you can make life a fairer place for others”.

I was an expatriate at CINB. There was a technical possibility to have expatriates be on the payroll of some entity in Luxemburg and, thereby, reduce their income tax burden to, say, the 17% which Buffett talks about. It would have been legal and it would have saved the employer a lot of money. When I asked the Personnel Department why they wouldn’t do something which would be a benefit to both parties, the answer was: “How should we explain that to the others who pay 35% or so (again to use Buffett’s example)?”

I once had the opportunity, in the mid-1980s, to be at a private luncheon with Paul Volcker in Buenos Aires. Had people like he stayed around, the financial madness of the years following would possibly never have happened (I still marvel at his response when he was asked not too long ago what he thought about all the new financial products which had been developed: “I think the invention of the ATM did more good to society than all the other new financial products put together”).

How do you instill values like that on a society when people like George F. Will don’t seem to care about them any more? Why do I think that you no longer care about them? Because I have never heard you scream about the fact that the American value structure of the last 2 or 3 decades has allowed a gigantic (albeit legal) transfer of wealth from the many to the few. I have never heard you scream about the fact that Wall Street has proven correct the complaint of liberals that the profits are often for the private sector while the losses are for society.

I have been a businessman for 4 decades, so please don’t believe that I am naïve. I have great admiration for places like Las Vegas where people speculate and make money or lose it. However, I have never heard that society had to bail out people who lost a fortune in Las Vegas. Why not? Because they speculated with their equity and not with OPM!

Why have I never heard an uproar from you about the excesses of a distorted value structure which almost brought America (and the world!) to her knees back in 2008? Why was it only Maureen Dowd who commented as follows about the Goldman-Hearings:

“Mr. Birnbaum, do you know what a stated income loan is?” Senator Kaufman asked. “I think it’s just what it sounds like,” Birnbaum replied, like a petulant schoolboy in detention. End of quote.

You emphatically stated that GM should have gone bankrupt the normal way. Well, do you not understand that a normal bankruptcy is generally the greatest destruction of values? Yes, assets don’t disappear; they get reorganized and prices will deflate so that a new investor will find them attractive. That is what the Chicago Boys explained to me in Chile in 1981/82. And they sounded absolutely convincing. They later found out that reality is different from laboratory and the repair cost them a lot more money than if they had done some prevention before.

You once wrote about Obama that there was “steel underneath his neat white shirts”. I wish you had been right. All the themes which he so beautifully articulated during his election campaign reminded me of the greatness of America. I then really thought that he would be the beginning of a long process of self-correction. Well, as we could see, it is just more of the same.

Where were you when the government had no choice but to bail out AIG so that Deutsche, Goldman, etc. could collect billions on their derivative contracts? Or would you have taken chances to let AIG go bankrupt? When John Meriwether speculated hundreds of millions of dollars at Salomon’s (successfully!), he was principally speculating with partners’ money. When he continued doing the same thing at LTCM (unsuccessfully!), he speculated with OPM. Where were you possibly writing about “j’accuse” that the value structure of the financial system had gone out of whack?

I agree that the Tea Party deserves credit for setting some sort of process in motion. But, please, not all means are justified by their ends. You might as well argue that, thanks to Hitler, the Germans became a peace-loving people (by no means do I wish to compare the Tea Party to Naziism!!!).

Where is your uproar about vulgar people like Rush Limbaugh, Glenn Beck, etc.? My host family in Florida in the 1960s (stout Republicans) would have said: “Don’t pay attention to people like Limbaugh. He may have some valid points but he is vulgar, and Americans are not vulgar”. The pure thought that a Bill O’Reilly is more courageous about protesting against uncivilized habits of representatives of his own ideology than the honorable George F. Will is mindboggling to me!

You praise Ronald Reagan and I admired this President, too. However, I am certain that Reagan would turn around in his grave if he knew how certain Americans usurped the value structure and took profits at the expense of the vision of the white city on the hill. Perhaps Reagan might have hoped that people like George F. Will would raise their voice to make sure that his vision would not be usurped. He would have felt terribly disappointed today, I am certain.

In conclusion, in the interviews I heard the mega-rich Buffett talk about value structures and I heard the political scientist Will talk about constitutional matters. With high respect for the importance of constitutional matters, no constitution and/or political system can substitute for the necessity of good value structures!

Not to mention the fact that Buffett talked about the real problems facing the US economy (the loss of competitiveness in the world as evidenced by the current account deficit) whereas Will talked about the budget deficit (which, incidentally, Buffett talked about, too).

I deeply regret to say, particularly since I have admired your views over the decades, that I can no longer see what I would have loved to see from you: forceful wake-up calls about the value structure which made America great!


1 Kommentar:

  1. I doubt that Mr. Will ever replied...

    It would be interesting to read how you see that situation today?