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XMFSinchiruna (26.46)

Incredible Wisdom from Charlie Munger



February 22, 2010 – Comments (16)

The following article by Berkshire Hathaway's #2 Charlie Munger is pure artistry, and will become a legendary contribution to the common understanding of our economic plight as it unfolds.

The article was featured Sunday on, and is a nice boon for them. I don't see that any CAPS boggers picked it up, so give it a read if you haven't already.

It's sobering title: "Basically, It's Over"

In it, he blasts the derivatives market as the grand casino that it is.

This is an incredible passage ["Good Father" = Volcker]:

The views of the Good Father drew some approval, mostly from people who admired the fiscal virtue of the Romans during the Punic Wars. But others, including many of Basicland's prominent economists, had strong objections. These economists had intense faith that any outcome at all in a free market—even wild growth in casino gambling—is constructive. Indeed, these economists were so committed to their basic faith that they looked forward to the day when Basicland would expand real securities trading, as a percentage of securities outstanding, by a factor of 100, so that it could match the speculation level present in the United States just before onslaught of the Great Recession that began in 2008.

It's a parable, and it ends:

"As it worked out, the politicians ignored the Good Father one more time, and the Basicland banks were allowed to open bucket shops and to finance the purchase and carry of real securities with extreme financial leverage. A couple of economic messes followed, during which every constituency tried to avoid hardship by deflecting it to others. Much counterproductive governmental action was taken, and the country's credit was reduced to tatters. Basicland is now under new management, using a new governmental system. It also has a new nickname: Sorrowland."

Coverage of the article is already appearing, and I think this will mark a recognizeable rung in the ladder toward broader public understanding of our likely economic scenarios.

Send it to your friends and family ... ask them what they think. What do you think about this article? Do you find it unsettling given the source? I would really like to have the pulse of CAPS in this one.

Remember, it comes on the heels of this hard-hitting satire from

U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion


16 Comments – Post Your Own

#1) On February 22, 2010 at 10:39 PM, ChrisGraley (28.53) wrote:

1 rec :)

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#2) On February 22, 2010 at 11:50 PM, topsecret10 (< 20) wrote:

 Using  the Munger article  In relation to the previous article In the Onion Is fitting given our current economic situation. I have been unemployed for 13 months now,and I can tell you from experience that this time IS different. We HAVE NOT seen the worst of this economic anomoly,and I am sorry to say that there will probably be much more pain ahead. Without jobs there will be no sustainable recovery. All of the PROS can crow all that they want about a "jobless recovery", but until the unemployment rate comes down below 6% or so,we are not going to begin the ENTIRE healing process. Even then,with Government debt so far out of control,It will be hard to sustain any meaningful recovery. The longer that the Federal Government remains fixated on health care,the worse this economy gets....    The only thing that has been "stimulated" are big banks,and they are not passing on that wealth to any degree. They are keeping all of their {trading profits} for themselves.....       TS

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#3) On February 23, 2010 at 12:10 AM, russiangambit (28.72) wrote:

I struggle to understand how Munger's views mesh with Buffet's. Buffet is one of the permanent cheerleaders of the US stocks and US economy. I don't really blame Buffet for talking his book, this is what expected of him anyway. I am rather surprised that Munger is not doing the same. It is a fact that after being surrounded by lies for a long time the reality and truth tend to become blurry and lies become more real. So how did Munger kept his sanity all this time?

As for derivatives, there was talk about brining them on an exchange a few months ago, it is gone now. The same with financial reform. It is like the administration lost the will to fight and is simply content watching the crash unfolding in slow motion. 

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#4) On February 23, 2010 at 1:00 AM, uclayoda87 (28.57) wrote:

Maybe he just previewed the Movie:

Generation Zero

which is due out in March.

The sound track appears to be taken from the game Myst.

The last chapter of Myst:  End of Ages.

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#5) On February 23, 2010 at 9:19 AM, SkepticalOx (98.55) wrote:

#3 It's their different and often opposing views that make their partnership so great. Buffett by all accounts is a liberal, and Munger, a conservative. 

From Wiki: "Buffett has often publicly stated that he regards Munger as his partner. Indeed, Munger owns enough Berkshire Hathaway stock to be a bona fide billionaire in his own right. However, Munger is hardly a carbon copy of Buffett: Munger is known to be a Republican, whereas Buffett has generally supported Democrats. Buffett devotes his time almost exclusively to his business, while Munger, who has not involved himself in the day-to-day operations of Berkshire for many years, is a generalist for whom investment is only one of a broad range of interests. Each man feels that their differences complement rather than detract from their relationship." 

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#6) On February 23, 2010 at 9:31 AM, Turfscape (< 20) wrote:

russiangambit wrote:
"I struggle to understand how Munger's views mesh with Buffet's. Buffet is one of the permanent cheerleaders of the US stocks and US economy."

Both men have spoken on the subject, stating that a sure path to failure is to surround yourself with people who always agree with you. If, instead, you always keep yourself open to seeing the flaws in your own thinking, your outcomes will be much, much stronger.

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#7) On February 23, 2010 at 10:40 AM, kdakota630 (29.14) wrote:

I was going to post this yesterday around noon but I thought I saw someone else allude to it, so I didn't bother.  But yes, it is an excellent article.

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#8) On February 23, 2010 at 4:36 PM, USNHR (29.93) wrote:

#2) the unemployment rate comes down below 6%

This could happen by people dropping out of the labor pool, not by finding jobs.

#3) Buffet is one of the permanent cheerleaders of the US stocks and US economy.

I believe Buffet is right over the long term, and assuming that we don't turn into an over socialized nation.

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#9) On February 23, 2010 at 5:43 PM, jddubya (< 20) wrote:

From the parable:

"Basicland is now under new management, using a new governmental system. It also has a new nickname: Sorrowland."

Very similar to Alstry I say.  It's all well and good to explain why things are bad, but to end the parable with a vague statement of what the ending really looks like?!?!?  LOL, i'm sure I'll get hammered for being naive, etc... but this parable is a fairy tale in my book.

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#10) On February 23, 2010 at 5:53 PM, XMFSinchiruna (26.46) wrote:

Here is my article discussing this piece:

Let me know what you think.

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#11) On February 23, 2010 at 6:21 PM, motleyanimal (35.12) wrote:

jddubya is correct.

Why recreate such a boring mythical place when we have so many finely crafted imaginary worlds to choose from?

Do you not know Death when you see it?

The World of Man will fall...and the Orcs shall rise!

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#12) On February 23, 2010 at 8:26 PM, XMFSinchiruna (26.46) wrote:

From my article:

"Munger has penned a sobering parable that appeared at over the weekend, and I expect that in time this piece will be viewed as a classic and timely attempt to instruct a nation in the basic foundations of fiscal solvency and the potential perils of our current trajectory."

Mark my words ... this article will be remembered as one of the more poignant financial pieces of this protracted deleveraging event.

Consider again the title: "Basically, It's Over".

Consider again the source: Berkshire Hathaway's Charlie Munger.

If it doesn't give even a confident Fool pause, I'm not sure what will.

He's telling us that we're royally screwed. I hope that he is wrong, but I fear that he is not. 

Here again, I apologize to all for presenting such unfortunate commentary, but I feel duty-bound to call it as I see it. We could be in for a world of hurt here if the most likely scenarios play out: i.e. continued debasement of the currency via quantitative easing (whether official or unofficial). These deficits foretell of massive supplies of treasuries still to come to market through the remainder of this decade, and yet even today we have unknown "buyers of interest" dominating the buying action in the bond pits. Failing foreign demand for Treasuries will be the tipping point for the dollar, as it is a myth that China can not thrive without additional exposure to U.S. debt.

It's not pleasant, but I believe it to be true. Joining Jim Rogers, Jim Sinclair, Niall Ferguson, Peter Schiff, and others whom I believe fully comprehend the enormity of our predicament, Charlie Munger has just publicly joined the fray. Remember, people ridiculed Peter Schiff before the deleveraging event became common knowledge, and many were stymied by the unsettling notion that perhaps he'd been right all along. Whom will people ignore this time? How many great minds will it take to have more Fools give pause to question the underlying safety of our financial system? The derivatives still abound ($600 Trillion+), and their natural tendancy is to continue deleveraging since markets for them remain impaired (to say it kindly).

Please Don't Shoot the Messengers

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#13) On February 23, 2010 at 10:05 PM, masterN17 (< 20) wrote:

It is a wonderful article to be sure, but the remarkable idiocy of the commenters at Slate drown this piece of brilliance in the sea of mediocrity. I have little hope it will generate meaningful reform.

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#14) On February 24, 2010 at 9:54 AM, russiangambit (28.72) wrote:

Here is some perspective on Warren Buffet. His folksy charm does nothing for me, I see him as one of many talanted money managers. As for Charles Munger it does seem like Buffet keeps him as someone to bounce ideas of and keep things in perspective. But at the end of the day, Buffet is very cunning and probably not very nice, no less so than Soros, for example. He is somebody to be wary of.

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#15) On February 26, 2010 at 12:44 PM, IlliniBanker (< 20) wrote:

Let me offer another parable: 

200 years ago, there was a man named Marley Chunger.  He was a carpenter that went throughout England in the 1700s building water wheels for mills. 

Chunger was worried that all of the people that had originally been ditch diggers, plow handlers, and horse trainers were all becoming engineers, mill owners, and boat pilots.  The country was losing people who were willing to "work", and instead, they were content to design stuff and manage things.

Chunger wrote an article about a fictional island where everyone stopped working and sat in the library all day writing books and shuffling books around while their country decayed. It scared a lot of people into going back into professions like bricklaying, farming, and animal training.  Meanwhile, the steam engines, steel plows, power plants, and other hallmarks of modern society would just have to wait because Chunger was nervous about the very thing he himself was a participant in.

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#16) On February 27, 2010 at 9:43 AM, catoismymotor (< 20) wrote:


Thanks for the article. Since so much has already been said I think I'll leave it at that. 


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