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Those who have attended the Berkshire Hathaway (NYS: BRK.A) (NYS: BRK.B) shareholder meeting know Charlie Munger as a man who chimes in with "I have nothing to add" to at least three-quarters of questions asked to his longtime business partner, Warren Buffett.
The Wesco Financial -- where Munger is chairman -- shareholder meeting is a completely different story. Free from the overwhelming spotlight cast on Buffett, Munger spends a few hours every year sharing his thoughts and opinions on, well, just about everything.
Below is a summary of my notes from Munger's three-hour meeting in Pasadena, lightly edited for clarity.
On how serious our economic problems are: "I think it's deadly serious. You can never tell what's going to happen when people get as disappointed as they are now. "
On when we'll see significant economic improvement: "Japan provides a very interesting and threatening example of this type [of] problem. Japan cut interest rates to zero and pumped in all kinds of stimulus through deficit spending, and the result was stasis for 10 years. If that happened in America, it would be terrible. Whether it will happen or not, I don't know. It would be very awkward to go 10 years with zero economic growth."
On what caused the financial crisis: "It's been a lollapalooza effect -- a confluence of causes pushing in the same direction. Three main areas I'd say got us to where we are:
Abusive practices in consumer credit. Banks did things because their competitors were doing them and wanted to keep up. This is crazy. There are times when you should let your competition do things and not want to follow. A lot of consumer lending was venal. It was bad morality that led to a horrible mess in due cause.
Wall Street. Wall Street found every which way to make money short of robbery. A lot of it was a bunch of sleazy crooks, but if it worked, no one cares.
Poor regulatory apparatus. Democrats wanted to give things to poor people, thinking it was pro-social activity. They urged Fannie Mae and Freddie Mac to make really dumb loans. Some of it was just ghastly. And the Republicans overdosed on Ayn Rand. It was like they wanted legalized armed robbery. They wanted to create an ethos simply built on 'buyer beware,' which is all wrong."
On free market financial systems: "People really thought that giving a predatory class of people the ability to do whatever they wanted was free market enterprise. It wasn't. It was legalized armed robbery. And it was incredibly stupid."
On accounting standards: "Anyone with an engineering frame of mind will look at [accounting standards] and want to throw up in the aisle. And go ahead if you want to. It will be a memorable moment for all of us."
On bailing out the banks: "We had to save these people whether we wanted to or not. And [the Treasury and Federal Reserve] did a fantastic job."
On regulation: "Banks that are 'too big to fail' shouldn't be allowed to be anything but boring. And that's how it used to be. Investment banking used to be a consulting business. It was extremely boring. The partners didn't make nearly the kind of money they do today. They were very conservative businesses.
There's no reason to have a system where every young man has $8 billion to play with and buy whatever he wants. It's incredibly stupid. It's absolutely crazy. If I were in charge, I'd take away everything from banks that wasn't boring. Completely shut down [credit default swaps] 100%. What's the harm in this? The world worked just fine without them. We don't need an economy that resembles a vast poker tournament."
On President Obama reining in Wall Street: "I admire Obama for wanting to reduce the power of New York City. It would have a constricting effect on the economy at first, but we need it."
On Wall Street pay: "A man does not deserve huge amounts of pay for creating tiny spreads on huge amounts of money. Any idiot can do it. And, as a matter of fact, many idiots do do it."
On Wells Fargo's credit quality: "Warren [Buffett] and I think Wells Fargo (NYS: WFC) is a better credit than most because of its low cost of capital."
On current stock prices: "Our best years were recession years. If you wait for the recovery, it's too late. Am I willing to invest long-term money at these prices? Sure. I'd invest long-term money in Wells Fargo. I'd invest long-term money in Coca-Cola. I don't know if it's right or not [in the short term] but you're all a bunch of cultists and you're entitled to hear my opinion."
On what to expect from the stock market: "To expect a lot is irrational. You're likely to be happier and gain felicity by aiming low."
On how to avoid 50% losses in the future: "It's in the nature of stock markets to go way down from time to time. There's no system to avoid bad markets. You can't do it unless you try to time the market, which is a seriously dumb thing to do. Conservative investing with steady savings without expecting miracles is the way to go."
On Treasury Secretary Tim Geithner: "He's a very able person and will do a good job. The job is terribly constrained by politics. This is why I've never had any interest in government. Considering what he's facing, he's doing a great job."
On how inflation will impact investing: "I remember the $0.05 hamburger and a $0.40-per-hour minimum wage, so I've seen a tremendous amount of inflation in my lifetime. Did it ruin the investment climate? I think not."
On investing in Goldman Sachs even as he and Buffett scolded Wall Street: "We invested in Goldman Sachs because we felt their merits outweighed their defects. That was it. We don't expect perfection from anyone."
On executive leadership: "Some people are more teachable than others. This is also true of dogs, however, so take it as you wish. [The executive level] should be a tough meritocracy. It shouldn't be easy. I look for people I can trust. Hiring people you can't trust is like starting off by dropping a spider in your bosom."
On AIG: These are sad days at AIG, because they were once regarded as great. The news headlines certainly don't help when you're trying to sell trust. Most of the company has been very unlucky, but this happens when people make dumb decisions."
On the trade deficit: "Warren [Buffett] is way more pessimistic on this topic than I am. He often talks about China buying up our little pieces of paper [Treasury notes]. I think China has become enormously prosperous by buying our little pieces of paper. It's a huge benefit to them."
On ethanol: "Ethanol is quite possibly the stupidest thing ever invented by rational people. The ultimate social safety net -- which is a very good idea, by the way -- is cheap food, and ethanol production is destroying this. It was a monstrously stupid idea like I haven't seen before."
On cap and trade: "It's an absolutely insane idea. I mean a really, really stupid idea. If everything [global pollution] was contained to one country, it might work. But it isn't. Do they think China will stop polluting and go back to student labor? Of course they won't. It's insane. We're being distracted by stupid things that have been popular in the past."
On stockbrokers: "Most stockbrokers are a disaster waiting to happen. If anyone ever promises you miracles, show them the door."
On adapting to peak oil: "The world will adapt to higher oil prices, because it has to. It won't be the end of the world. Even at $200 a barrel, we'd be fine. People would adapt [mentions smaller cars, electric cars, solar power]. We have an enormous power to adapt."
On Berkshire Hathaway's business model: "No one wants to try to copy us because they don't think it would work, and they're probably right. A lot of people think our model is nuts."
Asked whether Berkshire Hathaway will be more valuable in five years: [shrugs...] "Sure." [crowd erupts with laughter.]
On corporate lawyers: "Law has become far too prosperous. It's way overrated. The cost is too high and the education [of lawyers] is wildly imperfect."
On newspapers: "Ordinary newspapers will come to perish. The microeconomics are too tough to overcome. It's not a place to invest your money."
On communism: "China has communist builders and communist engineers. That's my kind of communism."
On books he'd recommend: "Malcolm Gladwell's Outliers is a terrific book. It guides reason very well. By the way, I tend not to read self-help investment books. They're like soap operas: I know all the plots."
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At the time thisarticle was published Fool contributor Morgan Housel owns shares of Berkshire Hathaway. The Motley Fool owns shares of Ford Motor and Berkshire Hathaway. The Fool owns shares of and has created a covered strangle position in Wells Fargo. Motley Fool newsletter services have recommended buying shares of The Goldman Sachs Group, Ford Motor, Berkshire Hathaway, General Motors, and Wells Fargo. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.