Kraven

I thought this was a great post. Regulators and legislators are very good at making sure the last crisis doesn't occur again. Not so good on known unknowns or unknown unknowns, but that isn't really what people are worried about. Everyone is worried that we will have another 2008 financial crisis. It's living and investing by looking in the rear view mirror. Anything can happen of course, but doubtful it will be the same thing that just occurred or what is staring us in the face (i.e. Europe). My experience is similar to Vinod's in terms of how the banks are operating today. I know from several wealthy friends who have sought mortgages or refis recently that it is an insane process these days. And these are people who don't need the mortgage. They could use cash, but choose not to. They make millions and it is still a multi month process. It seems to me that once all the bad, pre-2007 mortgages fall off the books (and according to Berkowitz, etc, we are more than 60% of the way through it) banks will have some of the strongest loan books they have ever had.

I don't see how all of this isn't years of litigation. BAC has no incentive to settle unless it is on their terms or they feel they derive some benefit from not litigating. Litigation can be dragged on for a lot longer than people think. Just for point of reference in situations that have nothing to do with this case or even remotely related. There is still Exxon Valdez litigation that goes on over 20 years later. There is still asbestos litigation that goes on from the original cases filed decades ago. The Winklevoss twins still have litigation against Facebook after 7 or so years. There is still plenty of Bear Stearns litigation ongoing. It becomes a war of attrition. At some point both sides will either agree to settle because the fight isn't worth it any longer, or they won't. But look at the incentives. BAC keeps pushing and all they owe is more legal fees. The ones suing them have their returns diminishing every day it goes on and have their own legal fees to pay. Not even Klarman can or will want to go on forever.

do you just post on this forum to make money? This is the second post today alone. I don't see how that book link will make Farnam Street money. Maybe I'm missing a connection. In any case whomever runs FS blog does a very good job and must spend a lot of time, gathering extremely interesting content. All on a free/ad free site. If he/she/it wants to try to make money on something like a painstakingly recorded Munger transcript, and let people know it exists, so be it. Agreed. Also, it's quite an ironic statement about it being Farnam's 2nd post of the day from someone, especially a new poster, who is averaging over 5 posts a day himself.

I am still puzzled why people would even begin to think there is something wrong with it. We might not like it (especially those who are long BAC), but it isn't unethical or anything else.

There is nothing per se unethical about it. I don't like it personally because I am long BAC, but the deal is already busted. These guys are simply pushing to enforce contractual rights embedded into the deal. If they are doing it by essentially blackmailing BAC (i.e. "you guys already have enough issues, pay us off"), that would be a different story, but there is nothing to indicate that. What strikes me as problematic is that piling on aspect of it all. At some point the banks needs to get out from under this real estate loan overhang. We don't want what has happened to other industries where the weight becomes too much and they just all go bankrupt. That doesn't help anyone either.

There are a number of shops doing this. They aren't buying the loans, they're buying MBS. It's kind of the opposite of the Burry/Paulson trade where they went looking for the MBS with the worst of the worst loans in the deal so they could short it. Now, you have people looking for the worst of the worst so that they can buy the securities that are already busted for pennies on the dollars, push for buybacks due to breaches of reps and warranties and get more money flowing into the deal. It's a labor intensive business. So far I don't know how lucrative the trade has been. It's a long term thing that I believe people are hoping plays out over the next few years.

Go Dog! Go! is for similar reasons on my list, and by chance was on my parents' list also quite a few years ago. I have learned much (though, unrelated to investing) by frequently re-reading The Cat in the Hat. OTOH I find there is too much repetition in Green Eggs and Ham - sadly, though, no worse than in Malcolm G's books. There is also Goodnight Moon, Horton Hears a Who and Time for Bed, Elmo. And who can forget the wonderful I Love You Stinky Face.

It's certainly for each person to decide these types of issues. Buffett's, or anyone else's for that matter, morals don't impact what I think of their business decisions, but I believe you are reaching in some of your justifications here. Did Buffett cheat on his wife? Depends on what you mean by cheating. Susie "set him up" with Astrid, but if you think that he and Astrid lived under the same roof for 25 years and saved themselves for their eventual marriage, I think you are being naive. Blaming his ability, or lack thereof, as a father on his childhood is also a stretch. He had a normal childhood. His father was a decent guy, his mother a nightmare, but it didn't strike me as so unusual. He wasn't a good father because . . . he wasn't a good father. He only cared about money and neglected his children. I know plenty of people who never see their kids except maybe a quick hello on the weekend as they are on their way to another meeting, the golf course, etc. It's because their priorities are different. It's not for us to judge, but don't rationalize it. Buffett was present in body (most of the time) for his children, but his mind was elsewhere. That had nothing to do with his childhood. He was also a big baby and wanted to be mothered himself. As for his friendships with Arod, I am really not sure what that has to do with anything. And Graham had tons of extra marital affairs, but in my view that doesn't seem to affect the words and ideas in Security Analysis and The Intelligent Investor. To each his own. But view it with open eyes.

I can tell you one thing. Blue Horseshoe loves LVLT.

+1

You haven't lived until you've driven around in a Cadillac with the Star Wars soundtrack playing on the 8 track.

My dad used to have cases of Tab stacked in the garage that he had bought at some warehouse store. I can still remember that bitter, horrible taste, but I always liked it because of him. People used to kind of say back in the day that Tab was essentially diet Coke - that is, until real Diet Coke came out and everyone realized how wrong they had been!

Perhaps the saddest thing for me is that I was familiar with each of those brands.

Just because you're paranoid doesn't mean they aren't out to get you, right? Don't forget that if you put foil around your head the government can't read your thoughts.

The types of stories are amusing, but always miss the point. The implication of course is that any derivative or securitized asset is backed by shit. People take the extreme situation of subprime mortgages and extrapolate that to mean that any structured asset must not be worth its weight as toilet paper. Securitization was and is a valid financing tool. It is only really the 2005-2007 years that tanked the securitization market. But what people never mention is that it isn't the vehicle which caused the problems, but the underlying assets. Nothing wrong per se with derivatives or securitization, it's the asset that's referenced or included in the securitization which causes the issues. That's not to say that there can't be issues with the structure. There can. But the problems we've had are not structural but underlying asset based. To make an imperfect analogy after the tech meltdown about 10 or 11 years ago any tech related mutual fund obviously did very badly. An internet themed mutual fund did even worse. But does anyone say that mutual funds are the cause of the meltdown? Of course not, it's the underlying securities that caused the problem, not the mutual fund structure.

Thanks for posting.

The problem that people don't realize is that if the dominoes fall, while it will certainly hurt BAC badly, it will also hurt the rest of the financial system badly. Do people really think that BAC can fall, but life goes on as it is? It just won't work that way. Everyone thinks that BAC is so different, but other than the shitty Countrywide loans, they do the exact same things as C, JPM, MS, GS, etc. Whether better or worse isn't the point, but they all do the exact same things, own similar things, etc.

Those fools with Schwab accounts are doing even better today at LVLT. So what's your point about the fools at Schwab? Oh snap. How dear you bash LVLT - it's a ten-bagger, remember? 8) I am pretty sure you MEANT to say that LVLT is a TEN BAGGER. You also didn't add that Buffett believes in 20 punches, a margin of safety and America. ;D ;D ;D

+1 to this thread

Personally I prefer the 1st edition of The Intelligent Investor to the 4th.

I find this thread somewhat interesting. There are those who appear to want the utopian ideal of being successful in an other worldly kind of way without being a prick and those who say successful people have character flaws. At the end of the day we are all flawed beings, but those who are extremely successful in their professional lives typically in my view have their flaws magnified. It just really isn't possible to be successful in an exceptional way and not be viewed as a tool by at least some people. They are typically very driven and busy and simply don't have the time for pleasantries or what have you. They are forceful and intend for their way to be the only way. I am not sure why this is such a surprise. To paraphrase a line from Wall Street (the movie), we're not talking about making $400k, flying first class and being comfortable. We're talking about liquid, being rich enough to own your own jet. How many people in the latter category aren't pricks in some way to someone? In my various places of employment everyone at the top of their professional lives was a douche in some way. The only exception I've seen is those who have "made it" and then can relax on the negative aspects of their personalities. Take Steve Jobs for example, from all accounts he seems to have chilled a bit in his later life, was a devoted family man, etc. I knew people who had been total assholes their entire working careers until their business was so set that they were able to finally stop being an ass to everyone. And you know what, they knew it and everyone knew it. I'm just not sure why it's such a surprise that successful people aren't warm and cuddly.

I'm a book publisher, and I disagree. It's a good straightforward account of his business life with lots of examples of his investing and explanations of why he made his decisions. There is always room for improvement from an editor's eye. But, what more could a value investor want? A book with literary style?! Or perhaps more coverage of personal shortcomings a la Alice S. ? I agree. I thought it was a terrific book. I suppose I can see why someone might not have thought it was the most wonderful book ever, but I completely disagree that it was poorly written and of limited value.

This is a very good point. People have the chance to buy financial institutions that will be forced to be less aggressive, will be safer than perhaps at any time in the past, and will still make plenty of money and the prices range from around half BV to about 1x BV.

At the end of the day I need to ask the question that I don't see asked. The question is, so what? What does it matter if they need to reduce leverage and will be less profitable? So they will make less money than they did in boom times or perhaps less money than one might have thought they would make when the world improved. They will simply be a bit less cheap than they are now, but still very cheap. I think people focus on the wrong things. Take BAC for example. So what if they end up with 1% ROA/10% ROE instead of say 15% ROE? Many of these banks are selling for well below book value now. So instead of being worth 2-3x book in a few years or whenver, they'll be at 1.5-2x book. Perhaps I am missing something, but other than the fact that as investments they are a bit less good than they were before, they are still good. But if these banks can all regularly go back to churning out 1%/10%, they are still very nice investments here.

I know some brokers and financial advisors quite well and most of them know almost nothing about how the market works, how to make good investments, etc. Many of them can roll a senior citizen's munis over or roll GNMA's or something like that. Disturbingly, I have heard many stories of how brokers blow themselves up trading options and the like. They are sitting all day in front of their computer screens, yet don't have the skills necessary to even attempt those kinds of maneuvers.