Tuesday, May 6, 2008

Quote of the Week

"Capitalism without failure is like Christianity without hell" – Warren Buffett

Once again Warren and Charles provided some zingers at their annual meeting news conference. One theme this year focused on the irresponsibility of banks in the continuing credit crunch. From their perspective, “the pain many financial institutions are feeling because of the credit crunch is well deserved”.

The chairman and vice chairman of Berkshire Hathaway Inc. said Sunday that the financial companies that engineered sub-prime mortgages and the investment funds that bought securities backed by those mortgages didn't deserve much sympathy for their subsequent losses.

The two billionaires emphasized that investment banks should not be rescued by the government. Failure and its associated lessons are an important part of capitalism. Continuing to rescue institutions that are “too large to fail” sends the wrong message about risky business behavior in the financial sector.

Buffett did state that “the Federal Reserve's bailout of Bear Stearns Cos. probably prevented a crisis among investment banks”.

Another section of the commentary focused on the “R” word. Buffett outlined that the country is obviously in a recession even if the conditions do not meet the classical definition of two quarters of negative growth.