Here the ever-acerbic, but very to the point editorial by Charles
Munger, Berkshire Hathaway vice chairman, in Washington Post. Munger
is a republican. Berksire owns 21% of WPO.

http://www.washingtonpost.com/wp-dyn...021003122.html

How We Can Restore Confidence

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By Charles T. Munger
Wednesday, February 11, 2009; Page A19

Our situation is dire. Moderate booms and busts are inevitable in
free-market capitalism. But a boom-bust cycle as gross as the one that
caused our present misery is dangerous, and recurrences should be
prevented. The country is understandably depressed -- mired in issues
involving fiscal stimulus, which is needed, and improvements in bank
strength. A key question: Should we opt for even more pain now to gain
a better future? For instance, should we create new controls to stamp
out much sin and folly and thus dampen future booms? The answer is
yes.
This Story

*
In the Tanks: A Debate on the Financial Rescue Plan
*
Geithner's Magic Tricks
*
Playing Down the Price Tag of the Fiscal Stimulus
*
A Rush-and-Shush Rescue
*
How We Can Restore Confidence
*
An Unfinished Product

View All Items in This Story
View Only Top Items in This Story

Sensible reform cannot avoid causing significant pain, which is worth
enduring to gain extra safety and more exemplary conduct. And only
when there is strong public revulsion, such as exists today, can
legislators minimize the influence of powerful special interests
enough to bring about needed revisions in law.

Many contributors to our over-the-top boom, which led to the gross
bust, are known. They include insufficient controls over morality and
prudence in banks and investment banks; undesirable conduct among
investment banks; greatly expanded financial leverage, aided by direct
or implied use of government credit; and extreme excess, sometimes
amounting to fraud, in the promotion of consumer credit. Unsound
accounting was widespread.

There was also great excess in highly leveraged speculation of all
kinds. Perhaps real estate speculation did the most damage. But the
new trading in derivative contracts involving corporate bonds took the
prize. This system, in which completely unrelated entities bet
trillions with virtually no regulation, created two things: a gambling
facility that mimicked the 1920s "bucket shops" wherein
bookie-customer types could bet on security prices, instead of horse
races, with almost no one owning any securities, and, second, a large
group of entities that had an intense desire that certain companies
should fail. Croupier types pushed this system, assisted by academics
who should have known better. Unfortunately, they convinced regulators
that denizens of our financial system would use the new speculative
opportunities without causing more harm than benefit.

Considering the huge profit potential of these activities, it may seem
unlikely that any important opposition to reform would come from
parties other than conventional, moneyed special interests. But many
in academia, too, will resist. It is important that reform plans mix
moral and accounting concepts with traditional economic concepts. Many
economists take fierce pride in opposing that sort of mixed
reasoning. But what these economists like to think about is
functionally intertwined, in complex ways, with what they don't like
to think about. Those who resist the wider thinking are acting as
engineers would if they rounded pi from 3.14 to an even 3 to simplify
their calculations. The result is a kind of willful ignorance that
fails to understand much that is important.

Moreover, rationality in the current situation requires even more
stretch in economic thinking. Public deliberations should include not
only private morality and accounting issues but also issues of public
morality, particularly with regard to taxation. The United States has
long run large, concurrent trade and fiscal deficits while, to its own
great advantage, issuing the main reserve currency of a deeply
troubled and deeply interdependent world. That world now faces new
risks from an expanding group of nations possessing nuclear
weapons. And so the United States may now have a duty similar to the
one that, in the danger that followed World War II, caused the
Marshall Plan to be approved in a bipartisan consensus and rebuild a
devastated Europe.

The consensus was grounded in Secretary of State George Marshall's
concept of moral duty, supplemented by prudential considerations. The
modern form of this duty would demand at least some increase in
conventional taxes or the imposition of some new consumption taxes. In
so doing, the needed and cheering economic message, "We will do what
it takes," would get a corollary: "and without unacceptably devaluing
our money." Surely the more complex message is more responsible,
considering that, first, our practices of running twin deficits depend
on drawing from reserves of trust that are not infinite and, second,
the message of the corollary would not be widely believed unless it
was accompanied by some new taxes.

Moreover, increasing taxes in some instances might easily gain
bipartisan approval. Surely both political parties can now join in
taxing the "carry" part of the compensation of hedge fund managers as
if it was more constructively earned in, say, cab driving.

Much has been said and written recently about bipartisanship, and
success in a bipartisan approach might provide great advantage
here. Indeed, it is conceivable that, if legislation were adopted in a
bipartisan way, instead of as a consequence of partisan hatred, the
solutions that curbed excess and improved safeguards in our financial
system could reduce national pain instead of increasing it. After the
failure of so much that was assumed, the public needs a restoration of
confidence. And the surest way to gain the confidence of others is to
deserve the confidence of others, as Marshall did when he helped cause
passage of some of the best legislation ever enacted.

Creating in a bipartisan manner a legislative package that covers many
subjects will be difficult. As they work together in the coming weeks,
officials might want to consider a precedent that helped establish our
republic. The deliberative rules of the Constitutional Convention of
1787 worked wonders in fruitful compromise and eventually produced the
U.S. Constitution. With no Marshall figure, trusted by all, amid
today's legislators, perhaps the Founding Fathers can once more serve
us.

The writer, a Republican, is vice chairman of Berkshire Hathaway Inc.,
which owns 21 percent of The Washington Post Co.'s common stock.