Charles Munger, the billionaire vice chairman of Berkshire Hathaway Inc., defended the U.S. financial-company rescues of 2008 and told students that people in economic distress should “suck it in and cope.”
“You should thank God” for bank bailouts, Munger said in a discussion at the University of Michigan on Sept. 14, according to a video posted on the Internet. “Now, if you talk about bailouts for everybody else, there comes a place where if you just start bailing out all the individuals instead of telling them to adapt, the culture dies.”
Bank rescues allowed the U.S. to avoid what could have been an “awful” downturn and will help the country as it deals with the housing slump, Munger, 86, said. He used the example of post-World War I Germany to explain how the bailouts under Presidents George W. Bush and Barack Obama were “absolutely required to save your civilization.”
“Hit the economy with enough misery and enough disruption, destroy the currency, and God knows what happens,” Munger said. “So I think when you have troubles like that you shouldn’t be bitching about a little bailout. You should have been thinking it should have been bigger.”
Germany was unable to stabilize its financial system in the 1920s, and, Munger said, “We ended up with Adolf Hitler.”
Taxpayer funds injected into banks helped insulate bond investors from losses and cushioned stock declines for equity holders. U.S. programs designed to ease the burden for distressed mortgage holders didn’t prevent foreclosures from rising to a record. One out of every 381 households received a foreclosure filing in August, according to RealtyTrac Inc.
“Charlie Munger is misrepresenting history, and that’s why the public is angry at Wall Street,” said Joshua Rosner, an analyst at research firm Graham Fisher & Co. “We could have wiped out the equity holders before we wiped out the taxpayer.”
Berkshire had advanced 26 percent on the New York Stock Exchange this year as of Sept. 17 and benefited from a recovery in earnings at some of its main bank holdings. It is the largest shareholder of Wells Fargo & Co., the biggest U.S. home lender, with a stake valued at more than $8 billion. Berkshire also owns $5 billion of Goldman Sachs Group Inc. preferred stock.
Munger won a cult following among investors for his economic insights and a direct manner of delivering his views. “He’s irascible, brilliant and doesn’t suffer fools gladly,” said Berkshire investor Jeff Matthews of Ram Partners LP.
Munger is welcomed by crowds of tens of thousands each year when he takes the stage with Berkshire Chairman Warren Buffett, his longtime business partner, at the annual company meeting. Thousands have also turned up at the annual meeting of Wesco Financial Corp., a Berkshire unit where Munger is chairman.
At the Michigan event, one questioner said he had attended both Berkshire and Wesco meetings. “You mean the groupies have followed me here?” Munger asked. To another who asked whether the government should have bailed out homeowners instead of Wall Street, Munger said: “You’ve got it exactly wrong.”
“There’s danger in just shoveling out money to people who say, ‘My life is a little harder than it used to be,’” Munger said at the event, which was moderated by CNBC’s Becky Quick. “At a certain place you’ve got to say to the people, ‘Suck it in and cope, buddy. Suck it in and cope.’”
At the same event, Munger said private investment may advance society more than charity. He’s a director at Costco Wholesale Corp., the largest U.S. warehouse-club chain, and has been Berkshire’s vice chairman for more than three decades.
‘A Better Place’
“I believe Costco does more for civilization than the Rockefeller Foundation,” Munger said. “I think it’s a better place. You get a bunch of very intelligent people sitting around trying to do good, I immediately get kind of suspicious and squirm in my seat.”
Charitable donations by Munger have aided California institutions including Stanford University, the Harvard-Westlake School and the Huntington Library. He is chairman of Good Samaritan Hospital of Los Angeles and gave $3 million to the University of Michigan’s law school to improve lighting.
Buffett, 80, has praised U.S. policymakers for the financial company bailouts. The world’s third-richest person, who oversees businesses selling insurance, candy and recreational vehicles, told Berkshire shareholders last year that the U.S. needs a stable financial system.
“Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat,” Buffett said in the letter accompanying Berkshire’s 2008 annual report. “Whatever the downsides may be, strong and immediate action by government was essential,” he said in the letter, published in February 2009.
Munger slipped 16 places to 230th on Forbes magazine’s 2009 ranking of the wealthiest Americans as Berkshire’s stock gain last year trailed the advance in the Standard & Poor’s 500 Index. His stake in Berkshire, which didn’t take government aid, is worth about $1.6 billion.
“To say you need tough love sometimes is probably right,” said David Kotok, chief investment officer of Cumberland Advisors Inc. He said single mothers are unable to find work and added, “So I think it’s kind of harsh to say, ‘Tough, no help for you.’”
New York-based Goldman Sachs took $10 billion in U.S. capital, while San Francisco-based Wells Fargo received $25 billion. Both banks have repaid the bailouts.