...while it is certainly easier, and a lot more fun, to write about good news—as Buffett has been accustomed to doing over the years at Berkshire, in contrast to the kind of bad news that has issued forth from Lampert’s fading retail giant of late—there is, even so, a remarkable difference in both the substance and style of letters by two men who actually have a great deal in common.
...For one thing, both started out as hedge fund managers. For another, both are without peer in their fields, and fabulously wealthy as a result. For a third, they each got into the position of writing annual shareholder letters as a result of taking control of a fading, once-giant, public company. Finally, they each spent years personally wrestling with how to turn the original business around.
...In the end, of course, one (Buffett) decided the rational thing was to disinvest in the original business and re-create the company to his liking, while the other (Lampert) is still wrestling with Sears even as he extracts cash from “hidden” assets like real estate and minority-controlled subsidiaries.--Jeff Matthews
...This is a core problem that finance in general and banks in particular have evolved to solve. A banking system is a superposition of fraud and genius that interposes itself between investors and entrepreneurs. It offers an alternative to risky direct investment and low return hoarding. Banks guarantee all investors a return better than hoarding, and they offer this return unconditionally, with certainty, without regard to whether other investors buy in or not.
...Opacity and interconnectedness among major banks is nothing new. Banks and sovereigns have always mixed it up. When there has not been public deposit insurance there have been private deposit insurers as solid and reliable as our own recent “monolines”. “Shadow banks” are nothing new under the sun, just another way of rearranging the entities and guarantees so that almost nobody believes themselves to be on the hook.
...This is the business of banking. Opacity is not something that can be reformed away, because it is essential to banks’ economic function of mobilizing the risk-bearing capacity of people who, if fully informed, wouldn’t bear the risk. Societies that lack opaque, faintly fraudulent, financial systems fail to develop and prosper. Insufficient economic risks are taken to sustain growth and development. You can have opacity and an industrial economy, or you can have transparency and herd goats.
...A lamentable side effect of opacity, of course, is that it enables a great deal of theft by those placed at the center of the shell game. But surely that is a small price to pay for civilization itself. No?
...Nick Rowe memorably described finance as magic. The analogy I would choose is finance as placebo. Financial systems are sugar pills by which we collectively embolden ourselves to bear economic risk. As with any good placebo, we must never understand that it is just a bit of sugar. We must believe the concoction we are taking to be the product of brilliant science, the details of which we could never understand. The financial placebo peddlers make it so.--Steve Randy Waldman