Even Charlie Munger Makes Mistakes

Berkshire's Munger says investors should lower expectations.

"There will be a hell of a mess in these derivative books eventually," he said.

Munger said better accounting standards are needed and banks should not be allowed to put money into risky and complicated investments.

"These people wouldn't get away with this horrible behavior if the accountants didn't bless it," he said.

Munger said the testosterone-driven, competitive executives heading most investment banks are partly to blame for the current financial problems.

"I do not think we'd have this mess if women were running all the financial institutions," he said.

Perhaps someone should remind Mr. Munger that a woman, namely JP Morgan's Blythe Masters, invented the Credit Default Swap.

Credit default swaps were invented with collateralised debt obligations in 1995 by Blythe Masters, a 34-year Cambridge graduate who was then the head of JP Morgan’s Global Credit Derivatives group.

Ms. Masters, formerly CFO, is still on JP Morgan's executive committee and is now global head of commodities. Good timing.



I might also remind Mr. Munger of the crisis caused by a certain Helen of Troy.

Warren Buffett On Peak Oil

Warren Buffett and Charlie Munger On Peak Oil.

Q29: Doug Hicks, Akron Ohio. Oil will run out this century. Considering US policy is to do nothing until last second, will we face World War III? Will oil companies go to zero?

WB: Oil won’t run out - it doesn’t work this way. At some point the daily productive capacity will level off and then start declining gradually. There is the depletion aspect and the decline curves. We are producing 86m barrels per day or so, more than ever produced. We are closer, by my calculations, to almost our productive capacity, than we have ever been. I think our surplus capacity is less, and quite a bit less, than in past. Whatever that peak is, whether 5 or 10 yrs, the world will adjust, and we will think about it. Adjustments will cause demand to taper off. I don’t know how much oil is there, but there are lots of barrels of oil in place. We never recover total potential. We may have better engineering recovery in future. It is nothing like an on and off switch. You may still have enormous political considerations to get access to avail oil since it so important. There is nothing you can do over short period of time to wean world off oil.

CM: If we get another 200 yrs of growth dispersed over the world while population goes up, all oil coal and uranium will run out so you will have to use the sun. I think there will be some pain in this process. I think it is stupid to use up hydrocarbons of world so quickly. Stupid when there are few and limited alternatives. What should we have done? We should have brought all the oil over from Middle East and put it in our ground. Are we doing it now? No. Government policy is behind in rationality. If we have prosperous civilization, we must use the sun.

WB: Charlie, what is your over/under for oil production in 25 yrs?

CM: Oil in twenty five years, down.

WB: If this is true, that is big number. China is doing 10m cars this year, so down in 25ys is significant.

Also see here, here, and here.