You can’t get higher in the ranks of European aristocracy than Marie Antionette – more correctly, Maria Antonia Josepha Johanna, scion of the Hapsburg rulers of Austria (and a good deal of the rest of Europe in those days) and wife of Louis-Auguste, Dauphin of France and later King Louis XVI. Some people are born with a silver spoon in their mouths, but she came into the world with an entire tea service, and received another one on her marriage (at the age of 14).
And you would be hard-put to find someone more quintessentially American, self-made and totally unaristocratic in both background and lifestyle, than Charlie Munger. Never heard of him? Well, you’ve heard of Warren Buffet and his legendary investment vehicle, Berkshire Hathaway? Good. Munger is vice-chairman of Berkshire and is the guy Buffet routinely refers to as “my partner”. Born in Omaha, Nebraska, in 1924, Munger grew up during the Great Depression and, after service in the air force, earned a doctorate in law from Harvard and worked as an attorney before focusing on investment management – first in his own firm and eventually teaming up with Buffet in the mid-1970s. Whilst not as rich as his far-more-famous chairman, he is nonetheless very rich by anyone else’s standards.
Although he lives in Buffet’s shadow, the 86-year-old Munger is no shrinking violet. He is interviewed and give speeches fairly regularly, in which he voices forthright views, with no time or patience for political correctness. These traits were on full display in his latest foray at the University of Michigan on September 14 and his talk there has attracted considerable attention in economic and business circles.
I will admit to not having listened to Munger’s two-hour discussion, instead relying on press reports as to what he actually said. However, these are considerably more reliable than the supposed utterance which every educated person attributes to Marie Antoinette – “let them eat cake”, supposedly in response to being told that the peasants had no bread. There is actually not a shred of hard evidence to support the claim that she said this but the apocryphal remark reflects a mindset that certainly existed – so let’s compare the attitude of 18th century royals with that of 21st century oligarchs.
In the course of his talk, Charlie Munger discussed the bailouts of 2008-2009 – their necessity, their propriety and who should and should not be bailed out. Thus, he said, people “shouldn’t be bitching about a little bailout” of the banks and, indeed, these were “required to save your civilization”. No less! The alternative to bailing out Citi and the rest was not merely the likely collapse of the financial system, but “civilization”. Maybe Munger thinks they are one and the same, but his rationale was that had the big banks failed, the resultant economic collapse would have opened the way to political upheavals – and the parallel he used was post-World War One Germany and the rise of Hitler.
That is a dramatic proposition, but certainly not without merit. However, even if we accept it, beyond the principle there remains the question of method. Why did the bailout take the form it did, in which not only were the big banks’ shareholders saved from total loss of their capital, but their bondholders were left entirely intact – no “haircut” whatsoever, let alone full nationalisation. Conversely, the banks’ borrowers – the general public, primarily mortgage holders – were not bailed out, but required to struggle on as best they could. The lenders and depositors – the haves of society — were granted salvation. The have-nots, or have-less, were left to fend for themselves.
For Munger this outcome was not an unfortunate result, but a necessary and desirable one. He expressed unequivocal opposition to any bailout of individuals, which would destroy American culture – “the culture dies”, in his words – and therefore must be avoided at all costs. To bail out mortgagees, as opposed to mortgagors, would be “shoveling out money to people who say ‘My life is a little harder than it used to be’, in his view. What then should distressed borrowers, including the sick, unemployed and otherwise unfortunate, do? They should “suck it up and cope”, in Munger’s typically blunt and brutal phrase.
This is surely just a modern formulation of the Marie-Antoinette-style “let them eat cake” approach. Although dressed up as financial rectitude and economic logic, it is actually self-serving hypocrisy. The poor are expendable and must suffer their fate, but the rich must be looked after – for the good of the country, for the stability of society and even for the survival of civilization. If the rich were to pay the price for their stupidity, corruption and general ineptitude, we would all suffer terribly – so we have no choice but to save them and thereby save the collective ‘us’.
The Marie-Antoinettish pre-revolutionary French aristocracy sincerely believed this and Munger is probably no less sincere in his belief that saving the monied class of the US and Europe is an essential condition for saving the-world-as-they-know-it. Any other world than the one they know is not worth saving, in their view. How unfortunate, then, that the world they are trying to save is already lost, and that even if Bernanke persuades his colleagues at the Federal Reserve to buy another trillion dollars or more of US Treasuries in an attempt to resuscitate the American economy, the effort will fail and the money will go down the drain.
Munger and Buffet, via Berkshire, are major shareholders in Wells Fargo Bank (the biggest home lender in the US) and have a small stake in Goldman Sachs. They put their money where their mouth is and their mouths are enlisted to support their money. Their humble personal beginnings have long since become irrelevant to what they think. Today, where they stand on the big issues is where they sit – on the boards of the big banks and corporations. Whether they understand, or care, that their attitudes are helping foment the socio-political upheaval they seek to avoid is an interesting question. But then, on her way to be guillotined, no-one bothered to ask Marie Antionette whether she had breakfasted on bread or cake.