Dear Mr. Buffett_ What an Investor Learns 1,269 Miles From Wall Street - Janet M. Tavakoli [105]
Washington has created a $9 trillion gross national debt. The size of the debt is around 80 percent of the $11.5 trillion U.S. residential mortgage market, or about $38,000 for each citizen of the United States (counting children and those no longer working). The only way to reverse this course is to increase national productivity relative to spending, practice sound lending (especially for the housing market), stop bailing out those responsible for this mess, and force the bloated regulatory system to go on a diet and do its job. American ingenuity and innovation may create future productivity gains, but we cannot depend solely on that.
Since we are so wealthy and since our lifestyles will improve with the debt we are accumulating, it is easy to avoid thinking about the fact that we will eventually get to a point where the amount of debt is uncomfortable.Then things will slide.That will be decades away, and our children will suffer the effects of our foolishness. Our enormous debt is growing slowly, but it is growing. Meanwhile the dollar is weakening.
There is a high cost of doing nothing. Around 100 years ago, Britain was the world’s greatest power, generating vast wealth from its sprawling empire. Britain is currently in no danger of becoming a Third-World country, but at times it seems like a very strong “Second-World” country. For all of the vast resources of the United States, in 50 to 100 years, we will become tomorrow’s Britain. After I commented on these problems in an interview with Harlan Levy of Connecticut’s Journal Inquirer in the fall of 2007, Warren wrote me: “Your answers in the interview . . . are 100 percent on the mark. Congratulations.”
Warren’s late mentor, Benjamin Graham, said it requires “considerable will power to keep from following the crowd.”2 In finance, following a bad crowd can lead to enormous financial gain (in the short term), so bankers can be tempted to take the easy road to riches instead of the high road. Sadly, regulators themselves sometimes succumb to temptation, and it is particularly vexing when it causes us to lose a strong advocate of investors’ interests. Washington failed to regulate Wall Street, failed to regulate mortgage lenders, and regulators failed to regulate themselves.
On Valentine’s Day 2008, the Washington Post printed New York Governor Eliot Spitzer’s screed on the Bush administration’s enabling role in the subprime lending crisis. The former New York attorney general’s aggressive prosecution of malfeasance relating to the dot com and Enron scandals had earned him the nickname the “sheriff of Wall Street.” His article castigated the Office of the Comptroller of the Currency, the national bank examiner, for its 2003 actions that protected national banks and predatory lenders from states’ lending laws. Spitzer did not stop there. He labeled the Bush administration a “willing accomplice” of unfair lending. He wrote that the administration thwarted state attorneys general with “an aggressive and unprecedented campaign to prevent states from protecting their residents . . . ” from predatory lenders.3 Aggressive in his methods, arrogant in demeanor, ruthless when exercising “prosecutorial discretion,” Eliot Spitzer’s often excessive zeal was excused by the media because he directed most of his energy at financial malfeasance. Spitzer may have imagined himself the arbiter of moral high ground, but he was no Thomas Moore.
On March 10, 2008, the New York Times broke the Spitzer scandal. More than one financier protested to me that in Europe,