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Highlights From the Barron’s Interview with Jeremy Grantham
By JLP | October 11, 2008
I don’t know if you’re familiar with Jeremy Grantham or not, but I like him. Barron’s published an interview with Grantham ($) in this week’s issue. Of course the topic was the credit crisis and market turmoil. Here’s just a couple of highlights from the interview.
This first one would be funny if it weren’t so true:
Barron’s: Do you think we will learn anything from all of this turmoil?
Grantham: We will learn an enormous amount in a very short time, quite a bit in the medium term and absolutely nothing in the long term. That would be the historical precedent.
I thought this one was also interesting:
Barron’s: Do you have any closing thoughts about how we got into this financial state?
Grantham: I ask myself, “Why is it that several dozen people saw this crisis coming for years?” I described it as being like watching a train wreck in very slow motion. It seemed so inevitable and so merciless, and yet the bosses of Merrill Lynch and Citi and even [U.S. Treasury Secretary] Hank Paulson and [Fed Chairman Ben] Bernanke — none of them seemed to see it coming.
I have a theory that people who find themselves running major-league companies are real organization-management types who focus on what they are doing this quarter or this annual budget. They are somewhat impatient, and focused on the present. Seeing these things requires more people with a historical perspective who are more thoughtful and more right-brained — but we end up with an army of left-brained immediate doers.
So it’s more or less guaranteed that every time we get an outlying, obscure event that has never happened before in history, they are always going to miss it. And the three or four-dozen-odd characters screaming about it are always going to be ignored.
If you look at the people who have been screaming about impending doom, and you added all of those several dozen people together, I don’t suppose that collectively they could run a single firm without dragging it into bankruptcy in two weeks. They are just a different kind of person.
So we kept putting organization people — people who can influence and persuade and cajole — into top jobs that once-in-a-blue-moon take great creativity and historical insight. But they don’t have those skills.
He may be right on that one but I also think a lot of it had to do with a sort of “to-hell-with-it” attitude that went on in the financial industry. The industry was primarily concerned with making money NOW—to hell with the consequences. I remember reading that mortgage brokers supposedly wrote bad business because they knew that if they declined, the borrower would just go down the street and get the loan from a competitor. It seems sound principles flew out the window.
Topics: Housing Market | 2 Comments »
October 12th, 2008 at 4:12 pm
I don’t think it was necessarily because they were too into making money. I believe everyone saw it coming, however, when they noticed it was going to be untenable there was no way of pulling back on time. The quickest and easiest way to solve the problem is for the govt to intervene. The govt does not intervene unless there is a crisis, because it is reactionary rather than pre-emptive (well except in pre-emptive attack doctrine).
October 24th, 2008 at 11:13 am
I gave a talk to a bunch of financial people earlier this year and during my presentation a lender asked me this question:
“If a good client comes in, and wants to borrow money, and you know it’s to pay off gambling debt, should you still lend the money?”
I laughed first, and then I realized that this was a real dilemma … at least for the lender who was trying to balance keeping the good customer with a sound lending decision.
The reality is that sound business practices went out the window a while back in the name of “making the quarter.” Short term gains have now translated into long-term pain.
Once upon a time, we had to prove we had a good reason to borrow money. Then we turned money into a commodity. Money IS NOT a commodity. It is a medium of exchange.