I watched their little talk in the GOCC on CNBC today.
It was interesting to see how Warren Buffett agrees with Paulson that if we hadn’t put $800 B in bailouts out there, one or two more financial institutions may have collapsed. And both of them agree that if one more institution collapsed at that point, things would be worse, cost twice as much to recover from, and the US dollar would have been twice as weak today. And could have possibly boosted unemployment in the US to 25%. Paulson correctly pointed out that Buffett, he and several other economists had singled out the sub-prime problems, but the government and banks ignored the reality in the hopes they would have fixed the problem at some point before a collapse. I think they both correctly pointed out the fact that had we reacted sooner (with good regulation), the bailout would have been significantly smaller and the impact less painful.
Paulson is still insisting that we put more regulation out there, and that companies don’t give monetary bonuses to C level leaders for performance, but give them more long-term incentives. Also, as the collapse of Greece’s economy proves, we need harder, tougher regulation to prevent unwarranted spending. As Buffett pointed out, we’ve been living on tax cuts expecting no repercussions for government spending, as well. If you increase government spending – especially on two wars – you have to raise taxes or cut budgets elsewhere. The Congress leading us from 2002 to 2006 basically tanked the nation’s surplus and drove up our deficit (which is now weakening the dollar badly). Which now drives up the need to spend in the trillions to fight that broken system we created with deregulation.
Bad news – I went off to do something else, and then realized that the DOW was on a rise based on the rumor that the EU will give Greece enough money to bail them out. I don’t think that’s going to happen the way people think it will, and I think that will cause a negative impact on Wall Street. On giving Greece money, they also have to give Spain, Portugal and Ireland money (all who have over-extended debt), which will actually impact the Euro the wrong way.
Good news – MetLife may buy out AIG’s life insurance group. That could relieve some of the pressure on AIG and give MetLife a big push.
Neutral news – both India and China face a huge jump in inflation, which may create big problems for US interests in those nations. It’s not bad news as employment will be cycled back this way and India’s surplus will have to be spent, bringing them back to some equity with the US. But it’s not good news since China can move their money around, and sink the dollar even more.