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Notes to myself, possibly of interest to others.
-- Bill Northlich

Saturday, October 4, 2008

Warren Buffet's interview with Charlie Rose

- on 10.1.08 is here

The article/transcript is great, highly recommended. I have one issue about his commentary - the part about midway through where he discusses the housing bubble. Concerning that, I sent the following to a (another) friend:

It's as if the housing bubble just happened - with no context. Blah blah greedy blah blah evil lenders blah blah. Stuff you hear all the time. Some of this is true at the margin.

The real reason for the housing bubble is not greed, bad lenders, or even low interest rates. The reason is that investment banks could quickly securitize the loans by creating CDO's which could be levered 30 to one (due to readily available insurance (cds's), no regulation on cdo's or cds;s, and, importantly, complicit rating agencies) - and once loans were securitized, there was even more money to loan out, due to the fees from securitization. Now securitization is broken the housing market is crashing (note that with the interest rate at 2%, the crashing is clearly independent of interest rates, so don't blame Greenspan or Bernanke). If the shadow banking system had been regulated and leverage caped at 12%, the problems we have today would not exist. Maybe other problems would exist - but maybe not as big as today's. So, IMHO, the problem is the wrong kind of regulation, and nothing else. The religiostic sterioided laissiz-fair dopiness of Bush 2 did not help.

Uh - what does Bill think of Bush 2?

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