Warren Buffett: Strict on Bank CEOs & Does not Approve of Kraft-Cadbury
On Thursday, Warren Buffett appeared on Fox Business News to discuss several topics.
(1) The first topic discussed was regarding President Obama’s new legislation to prevent banks from becoming “too big to fail.” Buffett did not say much about the legislation since he had not taken time to review it. However, Buffett stated his own solution to preventing banks from taking extraordinary risk. His solution is to create a situation where the chief executives of institutions that fail would be financially destroyed. Basically, the chief executive and his/her spouse would have to forfeit their net worth. He believes that there should be large downside for those executives running these banks and companies; however, at present, there are not many downsides and punishments for mismanagement. The chief executives of Citigroup, Bank of America, AIG, Freddie Mac, and Fannie Mae have walked away with relatively little downside. There needs to be downside for mismanagement other than just walking away.
CB: One example of a CEO who did not care about the consequences of his actions was Charles O. Prince, the chief executive of Citigroup prior to the crisis. Despite knowing the concerns and weaknesses in the credit markets, he stated that,
“As long as the music is playing, you’ve got to get up and dance.”
Although Prince lost his job, he did not suffer great relative monetary consequences for the reckless risk he led Citigroup to take. Instead, he retained the pay he made while the company’s chief executive. Such an example, supports Buffett’s above stated solution. For those interested, CB has indirectly touched upon this issue in the Daily DL for 12-10-09.
(2) Buffett stated that he was not unhappy with Glass-Stegall Act when it existed. Furthermore, he is not at all bearish on Goldman Sachs and continues to look favorably on the investment.
(3) Lastly, Buffett has expressed his disapproval of Kraft’s acquisition of Cadbury – one of the rare times Buffett has expressed such disapproval publicly.
Tagged with AIG, Bank of America, Cadbury, Charles Prince, Citigroup, Fannie Mae, Freddie Mac, Glass Stegall Act, Goldman Sachs, Kraft, President Obama, Warren Buffett
