Monday, February 22, 2010

Basically, It's Over - by Charlie Munger

Charlie Munger - Vice Chairman of Berhshire Hathaway and the right hand man of Warren Buffett wrote a story in Slate Magazine; detailing how "Basicland" grew, prospered and finally declined into "Sorrowland".

I especially love that the good wise man in the story is the fictional character, Benfranklin Leekwanyou Vokker. Sounds familiar, ya? Guess our leader has an admirer in the West.

In my fixed income class, the wonderful Prof Warachka reminded us repeatedly that derivative are not inherently dangerous, it is leverage that is dangerous. It is always excessive leverage that got people and society into trouble.

And in this article, Munger quoted Keynes "When the capital development of a country is the byproduct of the operations of a casino, the job is likely to be ill done."

Imagine if we can unleash all the amazing brains that are currently employed to create ever more complex financial instrument (and the accompanying risk management tools ) to build better bridges, communication systems, vaccines or harness energy better!!! Alas, even in SMU, operations people get far less 'respect' (and pay) than someone who gets a fancy finance job.

Enough of my ramblings, go read this yourself!
Basically, It's Over - A parable about how one nation came to financial ruin. By Charles Munger

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