[jsanford9292]

Value investing has been replaced by government support. Big companies like airlines are not allowed to "get cheap" anymore. From Berkshire Hathaway alone, there are hundreds of billions of dollars of private money waiting to step in during times like these. Instead, we will "bail out" aggressively managed companies and encourage all big companies to be more aggressive going forwards. Because they have a government backstop preventing them from failure. This will lead to more bailouts in the future, the burden of which falls to all American taxpayers. We are deviating from the incentives that make capitalism such an effective force.

[jmeister]

A counterpoint and a reason for hope: After the 08 crisis, the big banks were required to keep aside a lot more money in reserves, agree to periodic stress tests by regulators, and forgo certain risky activities(proprietary trading).

Now regulators/management are pretty confident that the banking sector is robust and a 08 like crisis cannot happen again.

[jsanford9292]

I spent two years studying US regional banks and I can tell you that what you're saying is factually correct. 08 effectively nationalized the big banks. "Too big to fail" means any bank over a certain asset size will be rescued by the government if it gets into trouble. Basically, bankers get the upside if loans go well, taxpayers get the downside if they don't. The worst kind of nationalization. But the 08 regulations were so stringent that it would be very hard for banks to fail. Like you said. However, since that time, politicians decided that the regulations of 08 were too constricting to banks and were hurting small and medium biz growth. So a bipartisan coalition in Congress lifted the regulations for all banks <$250Bn asset size. Deregulation. So now, these bankers are free to chase profits without the chains from 08 and if their banks end up failing, we will still bail them out. The worst of both worlds.

[ethagknight]

Keep in mind, this is a totally unprecedented government mandated shut down to the economy, not the result of overly aggressive fiscal management.

[jsanford9292]

Yes, this is the 2nd totally unprecedented economic "black swan" in the past 12 years. But I agree with you. The cause may always be different, but the problem lies in the principle. We are bailing out airlines because we cannot "afford" to let airlines fail. We bailed out banks in 08 because we could not "afford" to let big banks fail. There are actually airlines that don't need bailout money just as there were big banks that didn't need TARP money after 08. Some would call these companies "better managed". If we don't rescue the failing companies, they would then have to accept terrible terms from value investors like Munger and their equity would be worth a lot less than the equity at the "better managed" companies. This is proper incentive alignment. Having the government step in and protect the equity of failing companies will always result in misaligned incentives. By the way, employees at the failing companies fare pretty much the same whether the government or Munger steps in.

[ethagknight]

Great points all around. Also consider that those 'better managed' companies are effectively penalized for NOT rewarding their investors in the past, when they could have instead paid out dividends or buybacks and hope for a government savior if things get bad fingers crossed