Wall Street Bankers Share Blame for Europe Crisis, Berkshire’s Munger Says
Charles Munger, whose Berkshire Hathaway Inc. (BRK/A) holds $5 billion of options on Goldman Sachs Group Inc. (GS) stock, said the role of investment bankers in helping to mask Greece’s financial troubles was “perfectly disgusting.”
“Wall Street to some extent is deliberately trying to profit from sin, and I think it’s a mistake,” Munger told reporters yesterday after Berkshire’s annual press conference in Omaha, Nebraska. “Why should an investment banker go to Greece to teach them how to pretend their finances are different from what they really are? Why isn’t that a perfectly disgusting bit of human behavior?”
Munger has criticized bankers for greed and said he opposes handouts for distressed borrowers in the U.S. The 87-year-old executive, who helped Warren Buffett build Berkshire, said that the Greek work ethic shares blame with bankers for Europe’s debt crisis. Goldman Sachs helped Greece raise $1 billion of off- balance-sheet funding in 2002 through a currency swap, allowing the government to hide debt.
Greece “cheated on the accounting and the investment banks helped them cheat,” Munger said at the conference. “I don’t see why a bunch of Dutch and Germans should save them.”
Joanna Carss, a Goldman Sachs spokeswoman in London, declined to comment.
Greece, recipient of a 110 billion-euro ($163 billion) bailout from the European Union and International Monetary Fund, is seeking to avoid a debt restructuring after its 2010 budget deficit came in more than a percentage point wider than the government estimated. Ireland followed Greece with a bailout of its own, and last month, Portugal became the third euro-region country to seek an international rescue.
‘A Tough Problem’
Yields on two- and 10-year bonds from Greece, Ireland and Portugal all rose to euro-era records last month. Buffett said at the conference yesterday that the European Monetary Union is under pressure.
“I just don’t know if it can withstand the strains,” said Buffett. “It is really a tough problem when you tie yourself to a monetary union and you can’t really enforce the fiscal policies of the member nations.”
Buffett, 80, and Munger were asked in the conference about European debt, China’s sovereign investments and the outlook for acquisitions in countries from Brazil to Korea. They spoke for more than four hours on April 30 at Berkshire’s annual meeting, and took questions yesterday from journalists.
Relying on Support
Berkshire has warrants, expiring in 2013, to buy $5 billion in Goldman Sachs’s common stock at $115 a share as a result of a 2008 preferred investment in the company. The bank closed at $151.01 on April 29 on the New York Stock Exchange. Berkshire made more than $1 billion in dividends and charges on the $5 billion preferred stock holding before Goldman Sachs redeemed the shares this year.
Munger told shareholders who gathered in Omaha’s Qwest Arena on April 30 that Greeks “don’t want to pay taxes or do much work.” Munger said Europe faces “a helluva problem” as countries like Greece rely on support from nations with stronger credit and smaller budget deficits.
Greek Prime Minister George Papandreou has cut wages and pensions, overhauled the state-run pension system, and increased sales taxes and levies on alcohol, fuel and cigarettes to curb a deficit that soared to 15.4 percent of gross domestic product in 2009. The government on April 15 announced another 26 billion euros of measures for the period to 2015, including cuts in health, education and defense spending.
The economy shrank 4.5 percent last year, more than a forecast 4.2 percent. It’s expected to contract another 3 percent this year.
Munger’s statements “underscore a lack of respect for a population that is struggling to make ends meet amidst a deep economic recession, painful austerity measures and continuous Greek bashing from abroad,” said Jens Bastian, a visiting fellow for Southeast Europe at the University of Oxford’s St. Antony’s College. “Its citizens want change, have a stake in moving Greece’s economy forward, but also need to perceive these changes as fair and efficient.”
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