Supermoney by Adam Smith
Supermoney by Adam Smith
The guy before Michael Lewis wanders through the financial netherworld of the early 70's and eventually interviews Ben Graham and Warren Buffett. He ends up with 100 pages of footnotes, which his editor declined to include; and which now seem lost to time.
“The rates were eight percent, so I decided to wait a bit,” he said. “Then they went to eight and a half. That is historically very high, so I wanted to wait until the rate came back to eight. Then the rates were nine—more than nine—and there was talk that they might go to ten or twelve. We needed the money, and I had run out of time. So I had to do it.”
I pressed him a bit.
“Listen,” he said, “we borrow money all the time, and if the rates stay down I’ll borrow some more and then the average won’t look so bad. Anyway, I’m retiring in four years.”
It still sounded dumb to me, but then I have never had to borrow money for the telephone company, and quarter- backing is easier from the grandstand, especially after the game is over. Even Presidents know that.
Once again, the story of what happened can be seen from the tables of the Federal Reserve, this one called Funds Raised, Nonfinancial Sectors. Vietnam and inflation were indeed the causes of the Crunch, but from the Fed’s figures we can see that the stage was well set, for the demand for credit had increased by more than twice the savings that could supply it.
What I can and do promise is that: a. Our investments will be chosen on the basis of value, not popularity;
b. Our patterns of operation will attempt to reduce the risk of permanent capital loss (not short-term quotational loss) to a minimum; and,
c. My wife, children and I will have virtually our entire net worth in one partnership.
Pro- fessor Abraham Briloff of the City University of New York thought accountants should subscribe to a Nuremberg Code and should refuse to carry out orders that were improper or morally wrong.
Questioner: What happens if in the estimating equation for the Beta, you have misspecified so that you have serial correla- tion in the residuals?
Moderator: What?
Questioner: What happens if in the estimating equation for the Beta, you have misspecified so that you have serial correla- tion in the residuals?
Panelist: I think I can handle that. It is not a serious problem.
Questioner: But what if you do?
Panelist: I have written a very complex paper, which I am not sure I understand myself, and I can tell you it is not a serious problem.
Moderator: Does that answer your question?
Questioner: No.
JOHN HANCOCK WAS A REVOLUTIONARY, NOT AN OBSCENE LIFE INSURANCE SALESMAN