Buffet Announces Worst Berkshire Quarter Ever, and Economy in Shambles
Warren Buffett released his
Buffett Says Economy Will Be ‘In Shambles’ for 2009
Feb. 28 (Bloomberg) -- Billionaire Warren Buffett said the economy will be “in shambles” for the rest of this year as financial firms take losses tied to reckless loans made during the housing boom.
The Standard & Poor’s 500 Index will probably gain in three quarters of the next 44 years, just as it did in the period since Buffett took over Berkshire Hathaway Inc. in 1965, he said today in his annual letter to the company’s shareholders.
While Buffett and business partner Charlie Munger can’t predict how stocks will perform in 2009, they’re certain “that the economy will be in shambles throughout 2009 -- and, for that matter, probably well beyond,” he wrote.
I couldn't agree more here. We are looking at possible a decade of "shambles," but we all need to be asking ourselves why Bernanke and the other people in charge can't see this? They have been wrong up to this point and they continue to be wrong. How long will we stand for this, and when will we start holding the correct people accountable?
Home purchases should involve an “honest-to-God down payment of at least 10 percent,” Buffett said. “Putting people into homes, though a desirable goal, shouldn’t be our country’s primary objective.”
I think buffet is correct here too, though I think much more than 10% should be required to buy a home or a property. We should also not have the government encouraging, or helping real estate transactions. Owning a home is not a necessity, and it isn't for everyone. There is nothing wrong with renting until you can afford to purchase real estate. I do not think requiring 50% down to buy a house is even that unreasonable, house prices would drop enough that 50% would not be so far fetched.
If I was running a bank, there would be very few people that I would be willing to loan money to for a house with just 10% down, this is a lot of risk for the banks, and we see what happens when these risks get out of control.
“Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown,” Buffett said. “Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.”
This is where I disagree with Mr. Buffett. Readers of my blog should probably know by now that I am not in support of government intervention or involvement in the economy. The government needs to be getting out of the way to allow assets to fall to their free-market prices, and to allow participants in the economy to decide which banks they trust and which the don't (and thus which will make it through this). Banks that have made foolish investments and overextended themselves need to fail, and intelligint, well run banks will come in and take their place. This is how we should go from where we are now to a thriving economy that is even stronger than it has been. This would also get us to that point much faster.
The current acts of government are only making the problems worse, and more prolonged. We are going to let these poorly run banks continue to flounder along at the tax payers expense while crippling the rest of the economy with more taxes and more inefficient government spending. These are the reasons that I fear we may have an economy in shambles for up to a decade or more. If the government would get out of the way, we would have more short-term pain, but then we would be back on the road to recovery much sooner.
One thing is for sure, Buffett at least understands where we are headed and what the condition of the economy currently is much more than the people at the Fed, and the poeple on President Obama's team.