Full Q&A afternoon session from the 2008 Berkshire Hathaway Annual Meeting with the world’s richest man and most successful investor, Warren Buffett and his partner, Charlie Munger.
PM 2008 Berkshire Hathaway Annual Meeting With Warren Buffett, Charlie Munger - Full Q&A
OK we're going to go back to work here. We broke off in areas 7:00 last time. I have asked just so everybody's aware but we've had three questions relating to the climate situation and I think that's more than proportional to the interests of the crowd and so we'll will skip any more like that. I think the position is known and will go on to number eight. My name is Walter Larson. I live in Salt Lake City and I think on vrouw you guys are Wall Street Week 1981 or something so you must really have impressed me Warren what I meant what I'd like to ask you is that looking at the future have the business practices or the investment banks become so complex that it is not possible for the head or the investment bank to be aware of exposures to financial risks. Day to day or week to week. Yeah that's an exceptionally good question and I think the answer I think the answer probably is yes at least in some places although there's a few investment bank heads I've got enormous respect for their ability to sort of get their minds around risk but I decided for example when we bought Gendry it had about 23000 derivative contracts.
And I think I could have spent full time on that and not really been able to get my mind around how much risk we could we were running under some fairly extreme conditions that I did not think were impossible but that the people are running the operation might have thought were impossible or that might not have cared about it that much because their own incentive compensation was such that if they made a lot of money one year on something that would work ninety nine years out of 100 they would feel the chances of something going wrong were very slim. But I don't want to have a slam I want to have none. So I regard myself as the chief risk officer at Berkshire if something goes wrong at Berkshire because in terms of risk of the way we run the place there's no way I can assign that to a risk committee or have some mathematicians come in and make a bunch of calculations and tell me I'm only running a risk that will happen once in the history of the universe or something of that sort. I think the big investment banks a number of the big commercial banks I think they're almost too big to manage effectively from a risk standpoint in the way they were elected to conduct their business and it's going to work. Most of the time so you don't you don't see. You don't see the risk in a way that I mean you don't know if you have a one in 50 year rest that a place will go broke. It may not be in the interest of a 62 year old executive is going to retire at 65 to worry too much about that. I worry about everything at Berkshire. I would I would say there are two very hard to manage. Very hard to have your mind around. I mean clearly you've seen cases in the last year where very big institutions. If the CEO knew what was going on he certainly hasn't admitted it subsequent to what's happened.
Is it embarrassing either way but it's less embarrassing to say I didn't know what was going on than to acknowledge that you knew these kind of activities were going on and you let them go on. It's been asked for advice on regulation some time. And we have seen an extraordinary example which somehow the press really hasn't picked up on much. But do you had a you and an organization called tofail whose sole job was to supervise two big companies and they these big companies were Fannie Mae and Freddie Mac and they had a they had a large element a public purpose and that they were chartered by the federal government and they had their activities had overtones for the whole mortgage and securities markets. So Congress said if we're going to give you all this too big to fail type protection in terms of the federal government stepping in and give us special privileges we want to keep an eye on them. So they formed tofail and they had 200 people going to work. I would presume at but five in their sole job was to see what these two places were doing and they turned out to be.