Warren Buffett’s right-hand man gave a dark warning about American finance

Rick Wilking/ReutersBerkshire Hathaway vice chairman Charlie Munger.

Warren Buffett’s right-hand man, Charlie Munger, is worried about American finance.

According to the Berkshire Hathaway vice chairman, we have “a vast gambling culture, and people have made it respectable.”

Basically, the stock market is a casino, and too many people want to get rich quickly. He said:

There’s way, way too much of that in America. And too much of the new wealth has gone to people who either own a casino or are playing in a casino. And I don’t think the exaltation of that group has been good for life generally, and I am to some extent a member of that group.

I’m always afraid I’ll be a terrible example for the youth who want to make a lot of money with and not do much for anybody else and who just want to be shrewd about buying little pieces of paper. Even if you do that very honestly, I don’t consider it much of a life. Just being shrewd about buying little pieces of paper, shrewder than other people, is not an adequate life. It’s not a good example for other people.

Munger made these comments at the 2016 Daily Journal Meeting back in February. A transcripthas just been posted by value investor Whitney Tilson, the founder of Kase Capital.

Munger, a Republican and a billionaire, also said he agreed with the views of Democratic Sen. Elizabeth Warren of Massachusetts and Democratic presidential candidate Sen. Bernie Sanders on this issue.

“The truth of the matter is that … Elizabeth Warren doesn’t agree with me on many subjects, and I wouldn’t agree with her on many subjects, but she is basically right when she says that American finance is out of control and that it isn’t good for the rest of us,” he said. “Both Elizabeth Warren and Bernie Sanders are not two of my favorite people on earth, but they are absolutely right.”

Munger went on to say that there was cyclicality in the securities market and that “the big busts hurt us more than the big booms help us.” He added that what gave rise to Hitler was the Great Depression.

“What really enabled Hitler to rise was the Great Depression,” he said. “You put on top of the Weimar inflation the Great Depression, and people were just so demoralized that they were subject to being snookered by a guttersnipe like Adolf Hitler. So I think this stuff is deadly serious.”

Here’s the full excerpt:

Questioner: Last year you had some very pointed comments about Valeant. Do you have any updated thoughts or any thoughts on other companies?

Charlie Munger: It’s caused me nothing but trouble. It probably wasn’t wise for me to inject myself into this. I have no dog in that hunt. I have no interest in the pharmaceutical business. I have no interest in Valeant. It’s just that you people have come so far… I feel obligated to tell you a few good stories and make comments about current affairs. [Laughter] Valeant was such an extreme example of misbehavior and crazy greed and what have you that I couldn’t resist calling attention to it. And it ended up with one of Valeant’s shareholders saying that Warren Buffett was a sinner because he owned Coca-Cola. [Laughter]

I drew retaliation to Warren. By the way, that’s a good place. If anybody’s mad at me today, get mad at Warren. He can handle it. He’s a very philosophical man.

It is true that these crazy false values and this crazy excess is bad morals and it’s bad policy. It’s bad for the nation. It’s just bad, bad, bad. And there’s a lot of it. Now of course a lot of it is in American finance.

The truth of the matter is that . . . Elizabeth Warren doesn’t agree with me on many subjects, and I wouldn’t agree with her on many subjects, but she is basically right when she says that American finance is out of control and that it isn’t good for the rest of us. Both Elizabeth Warren and Bernie Sanders are not two of my favorite people on earth, but they are absolutely right [about finance].

You all see what goes on in finance: the craziness, the promotions, the fuzzy accounting, the crazy trading cultures…. It’s very bad for all of us that we have this huge overdevelopment of finance. And yet it’s very hard to do anything about it.

What happened: if you look back to, say, Edwardian England or the First World War, maybe 300 people, males, owned half the land in England. They had nothing to do. I mean, their under-butlers had under-butlers. What did they do, they went down to the clubs in London and sat around the card tables and gambled with one another for high stakes. That’s what human nature does when people have a lot of leisure. Fade in, fade out, and multiply the wealth per capita of the world by 30 or so and now we got all kinds of people who are like the lords of England who had all that time to play cards against one another and enjoy the thrills and things of gambling.

So we have a vast gambling culture, and people have made it respectable. Instead of betting on horses or prizefights, we can bet on the price of securities or the price of derivatives relating to securities, and we can bet on athletic contests. We have a huge amount of legalized gambling. And of course the public market, which operates every day with transactions, is an ideal casino. And there are a whole bunch of people who want to own a casino and make a lot of money without losing money on inventories or credit . . . and many other irritating parts of business. Just to sit there every night and go higher and higher. Who doesn’t want to be croupier in a casino? And very respectable people get drawn into it. They see other people getting rich.

There’s way, way too much of that in America. And too much of the new wealth has gone to people who either own a casino or are playing in a casino. And I don’t think the exaltation of that group has been good for life generally, and I am to some extent a member of that group.

I’m always afraid I’ll be a terrible example for the youth who want to make a lot of money with and not do much for anybody else and who just want to be shrewd about buying little pieces of paper. Even if you do that very honestly, I don’t consider it much of a life. Just being shrewd about buying little pieces of paper, shrewder than other people, is not an adequate life. It’s not a good example for other people.

It’s the reason that people like Warren and me are a) charitable, and b) we’re running businesses. We’re not just buying little pieces of paper. So I think that we have something going in our nation that is really very serious and very bad. And I hate to agree with Elizabeth Warren on this subject, but she’s right. And I don’t see any way of stopping it except with some big legislative change. And you’d say, what difference does it make? Well, what happens is – as the cyclicality of gambling in securities and other goes on – what happens is the big busts hurt us more than the big booms help us.

We saw that when the Great Depression ended in the rise of Adolf Hitler. A lot of people think that Hitler rose because of the great Weimar inflation. Well you know Germany recovered pretty well from that Weimar inflation. What they did is they destroyed the currency, and they just issued a new currency. It’s very interesting. They got rid the mortgages and inflation, and they put the mortgages back and they [issued] a new Reichsmark. And that worked pretty well, just like it works fairly well in Argentina.

What really enabled Hitler to rise was the Great Depression. You put on top of the Weimar inflation the Great Depression, and people were just so demoralized that they were subject to being snookered by a guttersnipe like Adolf Hitler. So I think this stuff is deadly serious in that these crazy fools should never let people like Alan Greenspan – he’s an amiable man, but he’s an idiot – should not make the head of the Federal Reserve and governor of all banking; somebody whose hero is Ayn Rand, who believed in no government at all.

It was a very unlikely place to look for correct decision making, and we probably got the kind of decision-making we deserve. I think he’s an honest and amiable man, but he just didn’t see reality the way it was. A lot of people think that if an ax murder happens in a free market, well it has to be all right because free markets are all right. A lot of those people are in my party, by the way.