Can Warren Buffett Be Wrong About This?? (#10)

In a January 20, 2013, on a CBS interview, when asked, “What is the greatest hurdle that President Obama faces in his second term”, Mr. Buffett said, and we paraphrase – “Its Congress.” Then he said that while everyone gets discouraged by Washington but, “what’s right with America just completely dwarfs what’s wrong with Washington, 535 people are not going to mess up 315 million - over time.”

While we like most others hold Warren Buffett in the highest regard, and normally wouldn’t dare contradict him, and keeping in mind his caveat “over time”, still in this instance we feel that currently in the U.S. and historically globally, the preponderance of evidence consistently shows that a few regularly “mess up” the many, whether they be the 535 of Congress or others globally, with power and influence. For the general public, the investor, the professional and the businessperson, it is imperative that they always remember the powerful few, be they in government, finance or religion, can do serious and long-term damage to the many.

Starting off, it was just over a month after the interview, on February 28, 2013, and in spite of repeated pleas from the President to do the “right thing”, the bitter partisanship of the Congress prevented a consensus that was required to prevent “Sequestration”. An arbitrary across the board $85 Billion budget cut that will negatively impact the U.S. economic recovery, shaving an estimated half point of the growth rate and possibly forcing thousands of job losses. As if to reinforce the point, a few weeks after Mr. Buffett’s statements the 535 in Congress inflicted additional and unnecessary economic damage to the 315 million.

In the recent past, in the U.S., the financial industry “few” let their greed get the better of them, and through the creation, sale and trading of questionable and downright toxic assets, worth hundreds of billions, and by some estimates trillions of dollars, introduced into the global financial markets, brought the entire global financial system crashing down. Regardless of the fact that the coordinated action of the governments of most major economies propped up the system enough to prevent a total collapse, yet the damage to the World’s economies is still ongoing today.

Historically there are too many examples of a few, seriously messing up the majority. Despotic rulers and their governing bodies, numbering fractionally few in comparison to the larger populations, at times devastated communities, nations and entire empires, altered the course of history, and caused untold damage to human development and brought misery to millions.

In recent history things hadn’t changed much. In 1939 Hitler and his political party influenced other fascist regimes of Italy and Japan (actual decision makers were few in numbers) to form “The Axis”, and plunged the entire World into war, that killed an estimated 50 to 75 million people, and devastated entire countries.

In 1945, the mutual distrust, personal ambitions and the inability to compromise for the greater good of the country (sound familiar?) of the leaders of the Hindu and Muslims populations in India to come to terms in sharing power, resulted in the “Partition of India”. Partition not only broke the country in three and created deep enmity that lasts to this day, but caused the displacement and exodus (the largest in human history) of over 10 to 12 million people, and the death of an estimated million innocent people. Politically motivated division, hatred and violence caused by a few, uprooted tens of millions of peaceful people that had co-existed for centuries. Unscrupulous politicians everywhere, even today, use the religious, ideological, race, colour and ethnic differences to stir animosity and hatred for their personal political and therefore financial gain.

Despotic dictators in Africa (Idi Amin, Mugabe etc.), Asia (Cambodia’s Pol Pot Regime), and elsewhere have single handedly destroyed entire countries and economies, and brought unnecessary hardship to millions of their citizens.

In the business and economic arena, the general public, investors, professional and business people, must watch out for the self and serving, ill informed, ill prepared political leaders and their minions, have through ill conceived economic policies, devastated entire economies and set countries back decades. In the private sector, perhaps better informed and better prepared, but equally self centered business and financial participants have through a combination of hubris and overriding greed, willfully, through bad decisions, destroyed companies, jobs, and more recently entire economies.

The gutting of banking and financial industry regulations, started under the two terms of President Ronald Reagan and continued under the two terms of George W. Bush, set the stage of excesses that culminated in the collapse of the banking and financial industry in the U.S. in 2008, and dragged down the entire global system. Fortunately in Canada, the Liberal government under Prime Minister Jean Chretien and Finance Minister Paul Martin resisted the tremendous pressure brought on by the Canadian banking and financial industry, to allow deregulation and merger of big banks into much larger global banks, thus saving the Canadian Banks from a fate similar to that of their American counter parts.

Coming back to Mr. Buffett’s comments vis-àvis the U.S. economy, the investors and professionals should not think the danger from the few for the many is ever to be discounted. The 535 members of Congress, while to a degree committed to the welfare of the Country, are far more driven by their ideologically opposing convictions, and more so by their need to denigrate and undermine their opponents, in an effort to retain or recapture political power. In that endless quest for power and wealth, the ever hungry few, will always “mess up” the larger majority.

In the crucial effort to come up with a workable budget, the incumbent U.S. government will be forced to grind through up endless political battles and compromises to try and come up with a workable number. That exercise will be more a study in partisan brinkmanship, rather than a focused cooperative effort required of the highest governing body, in the interest of a struggling nation.

In the North American financial industry, so far the changes hoped for after the collapse of 2008, in behavior and practice, are superficial at best. The entrenched culture that is greed driven, towards making the most in the shortest time period, is hardly going to change with what surely would be considered by the industry, a mere blip in the ongoing money making game. The industry is largely self governed, much too powerful financially and therefore powerful politically, to be changed materially by any well meaning body, whether regulatory or political. The power and influence of the few in that industry, dictated that the largesse of government after the financial collapse in 2008, release hundreds of billions and ultimately trillions in stimulus funding, almost exclusively to the benefit of those in the banking and financial industry. In spite of being the ‘few’ that engineered and precipitated the collapse in the first place, and so cynically accepted the government handout and paid themselves bonuses to boot, while the 315 million plunged into vortex of global, national and personal economic chaos.

The masses have always suffered at the hands of the few, and to underestimate their power to do further and ongoing damage is a grave mistake that we caution the general public, investors, professionals and business people. It is the short memory of the masses that allows the patterns to repeat themselves endlessly.

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