Buffett sidekick and Berkshire Vice Chairman Charlie Munger tells investors that a confluence of factors, what he calls a "lallopalooza effect," were behind the global financial market meltdown last year.
The causes include misguided government social policy, and reckless, nearly criminal behavior by some banks.
Munger spoke more freely to investors at the weekend during a meeting of shareholders in Wesco Financial, where he is chairman.
"Free from the overwhelming spotlight cast on Buffett, Munger spends a few hours every year sharing his thoughts and opinions," writes Morgan Housel on MotleyFool.com, the investment Web site.
Three factors led the economy to where it is now, Munger told Wesco attendees.
• Overzealous social programs:
"Democrats wanted to give things to poor people, thinking it was pro-social activity. They urged Fannie Mae and Freddie Mac to make really dumb loans. Some of it was just ghastly," said Munger.
• Dumb decisions by banking executives:
"Banks did things because their competitors were doing them and wanted to keep up. This is crazy," said Munger. "There are times when you should let your competition do things and not want to follow. A lot of consumer lending was venal. It was bad morality that led to a horrible mess in due cause."
• Lack of ethics by some on Wall Street:
"Wall Street found every which way to make money short of robbery. A lot of it was a bunch of sleazy crooks, but if it worked, no one cares," said Munger.
"People really thought that giving a predatory class of people the ability to do whatever they wanted was free market enterprise. It wasn't. It was legalized armed robbery. And it was incredibly stupid."
When will the world see a significant economic upturn, and will President Obama's massive deficit spending ignite inflation, which will eat into economic growth and consumer spending power?
The lost decade of Japan is illustrative in answering this question, Munger says.
"Japan provides a very interesting and threatening example of this type [of] problem," said Munger.
"Japan cut interest rates to zero and pumped in all kinds of stimulus through deficit spending, and the result was stasis for 10 years. If that happened in America, it would be terrible. Whether it will happen or not, I don't know. It would be very awkward to go 10 years with zero economic growth."
The United States does risk a Japan-style lost decade if more is not done soon, economist Paul Krugman warns.
"We're doing half-measures that help the economy limp along without fully recovering, and we're having measures that help the banks survive without really thriving," Krugman said.
"We're doing what the Japanese did in the nineties," he told a small group of reporters during a visit to Beijing.
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