Last evening I watched the recent discussion about the economy and financial crisis between Warren Buffet and Charlie Rose. Warren Buffet, who talks about the opportunities that this crisis presents to those with their money and wits about them, provides an incredibly succinct breakdown of how we got to this place, to the decisions that were made that resulted in such instability in the global markets.
The Three “i’s”
Buffet describes a progression to how good ideas can go bad. He called this progression the “three i’s,” with the first “i” being the innovators, those who originate new ideas having identified the opportunities that others had not seen. The next “i” would be the imitators, or those who attempt to replicate the successes of the innovators. Lastly, we have the idiots. The idiots, driven by greed and avarice, ultimately unwind innovations through blind determination to get rich. With regards to the global financial crisis, the issue is not with innovation, but with the rampant idiocy that followed that innovation. To Buffet’s point, the innovation in the financial system was very much about value creation, and the profit that results from this. The idiots sought to massively exploit the profitability piece of the equation, but this had the result of shutting off the creation of value, and ultimately created the financial bubble. This is an interesting and informing explanation on how we have arrived at the present. I suppose the challenge in moving beyond this is to get better at identifying the difference between the innovation and the immitation, and to subvert the potential influence of those who seek to exploit. Good luck to us all.
At about 22 minutes into the interview, Buffet starts talking about the danger of leverage and how much of what we face now has been caused by the collective abuse of leverage. On this, he points out:
“You can do smart things, but if you use leverage and you do one wrong thing it can wipe you out because anything times zero is zero.”
Warren Buffet
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October 11th, 2008 at 10:20 am
This crisis was always going to happen, debt was increasing exponentially due to the usury which purvays the global economic system and mindset.
Thomas Hudson concluded that in the 17th Century, the husband or breadwinner needed to work just 2 1/2 days a week to maintain his family. He could spend another 2 1/2 days building a church or a wall! As the economic vice of the money lenders took hold, soon the breadwinner had to work the whole working week in order to nourish his family. And now, today the mother must also go and work a full working week in order to make ends meet - we are enslaved by the debt we must pay back borne from the interest bearing economy these bankers have drowned the world in.
I would ask you to have a look at an interesting video found on the web which explains in laymans terms the problem and where it began:
http://video.google.com/videoplay?docid=-9050474362583451279&hl=en