Dartblog

Early this afternoon Dartblog posted a link to the full transcript of Charlie Rose’s interivew of last night with Warren Buffett. The famous investor is not, let us say, unused to ginning press for himself. Early in the exchange, he calls the present circumstance “an economic Pearl Harbor.” Charlie Rose, in his usual obsequiousness, asks why that is so, “beyond the fact that there is a freeze on credit, beyond the fact that nobody is making loans, beyond the fact that banks don’t lend to banks beyond the fact that treasury bills are at a low.”

And Warren Buffett replies:

Yeah. When 40 billion of treasury bills are sold like they were last week, seven day treasury bills, at a yield of 1/20th of one percent, that means the whole country is basically at the point virtually, or a lot of the country is at the point of putting the money under the mattress. One twentieth of one percent away from where it’s betting to put it under the mattress. You don’t want 300 million Americans putting their money under the mattress. This economy doesn’t work well without the lubrication of credit and trust. And that’s been lost. It’s a huge problem.

What you have is you have the major institutions of the world all wanting to deleverage. They want to take down their assets and liabilities. What seemed so easy to borrow against a year ago now looks like rat poison to them. So they’re trying to deleverage. There is only one institution in the world that can leverage up in a way that’s all a countervailing force to that, and that’s the United States Treasury.

But there is a problem of diction, there. As a player in the present situation, the Treasury is but an abstraction. It is not the countervailing force; it is the gatherer of winds.

In just the last month, if we presume the bailout passes tomorrow, the Treasury has made nearly one trillion dollars in various backstopping and capital infusion guarantees. But the Treasury does not have one trillion dollars to invest. Hence the legislation: for the Treasury to backstop the banks, it must itself be backstopped. And it is—by Americans, whose collective wealth is unequaled. At dinner last night, I asked a friend what would happen if this sort of a credit seizure were to befall a nation that did not privilege, as a precept to all its endeavors, private wealth. What if there was no one bigger than the government? In that situation, collapse would be a genuine possibility—a likelihood, even. But Americans own $15 trillion worth of homes. (Down, of course, from a peak of about $20 trillion.) And Americans own more than $1 trillion worth of securities in their 401k accounts, and far more in non-retirement investments, and plenty of cash, and so on.

This episode turns out to be a tidy précis of dueling political philosophies. First, politicians of a particular Obamish persuasion used government force to coerce companies into giving cheap money to high-risk borrowers. (Cf. 1995 Community Reinvestment Act.) Then people overextended themselves. Ultimately it all comes to the ragged edge of a great free-fall, leashed back only by the fact that most people are far more reasonable than the left-liberals who caused the mess—people who never asked the oafish government to interfere in the first instance, and have responsibly kept their little fortunes in order. It is their $700 billion that Congress is calling upon.

Pity Barack Obama and his fakirs, who have to sleep tonight knowing that their bitterest philosophical rivals are going to solve the problem they’ve created; and that, when the cock crows, they (Barack & Co.) are going to buck up, head out, and start advocating the same bill of errata all over again—but far, far more cleverly.