So even Berkshire Hathaway (BRK) Chairman Warren Buffett didn’t believe that housing prices would fall from their peak. As housing crisis blogger Calculated Risk asks, “Hoocoodanode?”
That’s the term CR coined when he got sick of hearing that housing prices would keep going up no matter what. Or when people said that liar loans would pay off because housing prices just couldn’t fall. Or that if you aggregated lots of liar loans into mortgage backed securities, you could legitimately rate them AAA. Or that if housing prices fell, it might happen in a very few selected markets, but not across the country. Or that our financial problem was “contained” in the relatively small sector of subprime lending, and hoocoodanode that panic was in the making?
We say all this, not to pick on Buffett, who has forgotten more about investing than we expect ever to learn, but to illustrate how deep denial still runs among those who run this country. And THAT’s scary. While Buffett certainly knew stock prices were overvalued in 2007, and kept extra cash on hand at BRK just in case, he underestimated the financial crisis when it broke.
What throws us is that Buffett — and probably most of his peers — apparently live in a country that no longer exists. In Buffett’s America, Republicans might actually pull back from undermining Obama if Democrats don’t “point fingers” of blame or use the crisis to enact legislation that Republicans don’t like. Not only that, Buffett’s America remains a land of opportunity where smart people come from all over the world to build new businesses and first class innovations that make us better competitors than all the rest. That’s why he seems to think that if we just bail out sick banks the economy will rebound and all will be well. (Okay, Buffett did say that banks need to get back to basics rather than marketing risky derivative securities, so I am being little harsh. But not by much.) This thinking is so outdated and contains so many fallacies it’s hard to know where to begin, but a writer can start, can’t he?
First, today’s Republican Party will not support a Democratic commander-in-chief short of a World War II style military attack on America. Led by Newt Gingrich, the Republicans regained control of Congress in 1994 simply by blocking health care reform. Gingrich knew as well as anyone that many Americans had no health coverage, and that medical costs were getting out of control. He also knew that US corporations had higher costs than foreign counterparts because US companies often pay for at least some of their employees’ health coverage, but in all other advanced economies, the government pays for health coverage. Rather than work with Democrats to enact or improve on the Clinton plan, Gingrich made sure that a Democratic administration would not get credit for solving an important problem. The Republicans learned in 1994 that opposition for opposition’s sake can win elections even when it hurts the country, and they won’t change now. That’s why Rush Limbaugh, the Republican Party’s most prominent spokesman, said that he wants Obama to fail.
Second, we wonder what legislation Obama is considering that would gratuitously provoke Republicans, according to Buffett. CNBC didn’t ask during the March 9 interview, so we are going to guess that he refers to the Employee Free Choice Act (EFCA), and to health care reform. We believe that both of these would actually help the US recover from the economic crisis. EFCA would make it easier for workers to form unions, and as we stated some weeks ago in “The Big One Time Gain,” allowing American workers to earn more money might help them buy more American products. As Buffett knows, the 1935 Wagner Act, which established basic rights to collective bargaining as well as the National Labor Relations Board, was an important part of the New Deal and helped build the widespread prosperity that postwar America enjoyed. And as stated above, we believe health care reform would enhance US business competitiveness. Even Wal-Mart, which has long been known for tough employee relations practices, now supports health care reform.
Thirdly, Buffett’s ban on finger pointing effectively means, no investigative commission on Capitol Hill to find out what went wrong with our economy or how we need to fix it. That’s not only bad policy, it ignores history that Buffett knows well. In the 1930s, the Pecora Ccmmission uncovered dishonest Wall Street practices and its investigation led to the establishment of the SEC. We have to wonder how Buffett could have had his career without the SEC, which forces companies to disclose audited financial statements and other data about their businesses, in annual and quarterly reports. Buffett spends most of his days reading SEC filings and that makes him the renowned stockpicker he is. Does Buffett really think that we don’t need to know why we find ourselves in the crisis we are in now? The mind boggles.
Fourth, America just isn’t the talent magnet it used to be. We let foreign graduate students come to our world class universities, and make it hard for them to get permanent resident status so they can stay here legally. That’s just dumb. Many of them would do brilliant work for US companies, or found their own innovative companies here. Instead they go back to where they came from and benefit their home countries. American business supports this stupidity too. US tech firms are strong advocates of the H1-B visa program, which allows a US company to hire foreign technical workers temporarily. In other words, they bring foreign scientists and engineers here, give them first rate experience, and send them home. What kind of policy is that?
No recitation of this problem would be complete without mentioning just how badly, post 9/11, the US treats suspected illegal immigrants. Even Fox News reports on how we deny suspected illegals due process and herd them into detention centers with inadequate health care. No one denies that immigration laws should be enforced, but it is un-American to abuse suspected illegals before proving them guilty. And why abuse even the guilty? Simple deportation home, along with humane treatment, would suffice for those who should not be here. And how stupid to send abuse victims back to countries all over the world so that they can tell others how badly we treated them and stain our reputation. What is wrong with us?
We could go on, but let’s just mention point five, the proposed bailout of Detroit’s Big Three. Buffett mentions the usual claptrap about having both business and labor make some concessions but what would scrapping excess manufacturing capacity to match demand really accomplish? In addition we must make sure that Detroit uses the innovative thinking that is already out there so that it can produce energy efficient vehicles and leapfrog foreign competition. Otherwise Detroit will just die a slower death by making fewer bad cars.
We have long been frustrated by Detroit’s failure to listen to physicist and McArthur laureate Amory Lovins, who in the 1990s figured out how to make cars several times more fuel efficient than they are now. Just as stupidly, GM recently spurned innovative Israeli solar electric car technology. We don’t know that the latter would work, but doing the same old thing has put GM in danger of bankruptcy. Why not try something different?
So, we agree with Buffett that America’s best days could — could — be ahead of it, if we confront our problems honestly and rediscover the Yankee ingenuity that made us prosperous. But wishing will not make it so. Neither will blind nostalgia.