This is an interesting read, interesting ideas. Got to love what warren buffet said. Warren Buffet has to be, in my opinion, the most intellegent person on the planet. He understands intuitively how things work and sees the important parts of the big picture. This is what real intellegence is about, I could careless how many didgets you can calculate Pi to in your head, or what esoteric words you can spell, how well read you are, or what you made on some standardized test….anywho here it is reprinted without permission from the forbes website
(note: just to be clear artical was not writen by warren buffet it just has a quote from him it was writen by “John C. Bogle is the founder and former chief executive of the Vanguard Mutual Fund Group and author of Enough: True Measures of Money, Business, and Life (Wiley, $25).”)(and the guy who if you see him on tv lately you’re like oh thats what they mean by older that dirt…)
The silver lining around Wall Street’s collapse.
The failure of our financial system has brought what looks like a significant recession upon the land, with hardship resonating throughout the economy. The citizens of New York City were the first to feel the blow. By September 2008, before the markets started their most precipitous dive, employment in financial and insurance jobs in New York had already dropped 5% to 335,000, from 354,000 in August 2007. Nationwide, the financial sector announced 153,000 job cuts in 2007. When the 2008 cuts are tallied, they are sure to reach 200,000 or more. And 2009 isn’t looking good, either.
It will be hard for many citizens, far less well-to-do than hedge fund managers and stock analysts, to get by. In 2006 the wealthiest 20% of wage earners in Manhattan made $350,000 on average, nearly 40 times the $8,800 income earned by the poorest 20%.
But there is a silver lining around the loss of jobs among the large portion of that 20% who work in financial services. Last year a substantial sum, $620 billion by my rough calculation, poured into a system that supports the money shufflers and middlemen, whom I call the “croupiers,” of the financial services industry. That’s a lot to pay for financial intermediation. Where did I come up with $620 billion? I used data from a trade group, the Securities Industry & Financial Markets Association, from Lipper, from an outfit called Empirical Research Associates and from my own estimates of fees charged for legal and accounting services ($15 billion), financial advisers ($10 billion) and bank trust departments ($5 billion).
And don’t forget that these costs recur year after year. Even as I expect these numbers will drop until the present crisis passes, aggregate intermediation costs could easily total $4 trillion over the next decade. Now think about these cumulative costs relative to the $9.5 trillion value of the U.S. stock market and the $30 trillion value of our bond market.
So what does it mean when a portion of these billions suddenly vanishes? We know from history that the effect on New York City can be devastating. Following the 1973–74 stock market crash the city suspended principal repayments on its notes (while gamely insisting that this was not a default). Bondholders were eventually made whole, but the blot remained on this big borrower’s credit report.
As the layoffs descend on New York, with even mighty Goldman Sachs (nyse: GS – news – people ) announcing in October that it would ax 3,000 jobs, the city must retool. This presents a golden opportunity. We have quite enough lionizing of the notion of “success” as popularly defined, by a certain kind of material wealth, fame and power, the kind of success, in other words, that we have come to associate with Wall Street’s wizards. Our obsession with these flawed markers of success has, in turn, led to far too much young talent flooding into a field that inevitably subtracts value from society.
I am not the only one to make this observation. In Berkshire Hathaway (nyse: BRK – news – people )’s 2005 annual report Warren Buffett offered the parable of the fictional Gotrocks family. Sole owners of corporate America, this huge clan sits back and collects the generous rewards of investing. Until fast-talking helpers arrive and persuade some family members to pay the helpers to try to earn more at the expense of other family members. But in total the family ends up with less. Why? Because the Gotrocks are now paying the helpers, thus diminishing the total return earned by all the businesses in their portfolio. Worse, the Gotrocks are now forced to pay taxes on the capital gains incurred as the helpers swap stocks back and forth. After several go-rounds with different helpers, the Gotrocks finally listen to an old, wise uncle who advises them to fire all the helpers and simply reap 100% of their investment gains themselves.
I do not wish suffering on the people of New York City. But maybe we should be grateful for any shrinkage in a system that has too many people engaged in shuffling the assets owned by the rest of us.
John C. Bogle is the founder and former chief executive of the Vanguard Mutual Fund Group and author of Enough: True Measures of Money, Business, and Life (Wiley, $25).