USA | May 9, 2023

CEOs and managers of failed banks should suffer -Buffett

Al Edwards

Al Edwards / Our Today

Reading Time: 3 minutes
Berkshire Hathaway Chairman Warren Buffett. (Photo: REUTERS/Scott Morgan)

Those who run banks and investment houses into the ground always walk away unblemished, without a care in the world.

That’s the case both in Jamaica and in the United States.

Back in the 1990s we had FINSAC with financial entities having to be propped up to the tune of 40 per cent of Jamaica’s GDP.

There are those who were responsible for failed institutions who simply immigrated to the United States, leaving an awful mess behind.

Then there was the financial meltdown of 2008 with mortgaged backed securities crippling many American banks and signed the end of Bear Stearns. Here, the US Federal Government, like in Jamaica, had to ride to the rescue.

This year wide scale fraud was uncovered at Stocks and Securities Limited (SSL) with investors including superstar athlete Usain Bolt losing millions of dollars with no sign of them to date able to retrieve their money. The leaders of that institution claim they were in the dark as to what was going down and will not accept responsibility for the fraud and mismanagement that took place.

In the United States, Republic Bank and Silicon Valley Bank have gone under with management not being held accountable. These bankers are very well compensated and are entrusted to do right by shareholders, but they face no consequences for their abject failure.


Both chairman and vice-chairman of Berkshire Hathaway (Warren Buffett and Charlie Munger) addressed this at their latest shareholders meeting.

Warren Buffett had this to say: “If the bank gets into trouble, both the CEO and the directors should suffer. The stockholders shouldn’t suffer, they didn’t do anything. It doesn’t teach any lessons except if you run a bank and screw it up, you are still a rich guy and the world goes on – that is not a good lesson.”

Both in Jamaica and in the United States, when s…hits the fan, nothing happens to those in charge and executives of these failed banks are not prosecuted.

Charlie Munger. (Photo: Reuters)

Charlie Munger waded in: “ I’m deeply disturbed about how everybody today wants to get rich and envy’s everybody else. I regret that atmosphere is utterly toxic.”

Buffett continued: “The American people are confused about banking and that has consequences, but nobody knows what the consequences are because every event recreates a different dynamic. In physics you know that pi is going to be 3.14 no matter what happens. But you don’t know what happens to the stickiness of deposits. It got changed in 2008 and it has changed now, so we are very cautious in a situation like that about ownership of banks. The American public doesn’t understand its banking system.”

Apply that to Jamaica. Does Jamaica understand its banking system and do people believe it to be equitable?

“The situation in banking is similar to how it’s always been in banking – that the fear is contagious. Historically sometimes the fear was justified and sometimes it wasn’t. If you have people who are worried about whether their money is safe in a bank and think they will not be able to withdraw it, then you can’t run an economy very well.

“You must have punishment for the people who do the wrong thing. If you take Republic for instance, you could see they were offering non-government guaranteed mortgages at jumbled amounts at fixed rates sometimes for 10 years. That’s a crazy proposition. The world ignored it until it blew up. The directors do have the ability to hold the CEO accountable,” said Buffett.

Charlie Munger piped in, “I’m so old-fashioned that I liked it better when banks didn’t do investment banking. I don’t think having a bunch of bankers with all of them trying to get rich leads to a good thing. I think a banker should be more like an engineer- more into avoiding trouble than getting rich. They can do find that way. We make a big mistake where every banker plans to get rich. It’s a contradiction in values.”


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