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George W. Bush Once Said The Greatest Economic Statement Of All Time; WARREN BUFFETT
Topic Started: 10 Dec 2013, 11:24 PM (1,218 Views)
peter fraser
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WARREN BUFFETT: George W. Bush Once Said The Greatest Economic Statement Of All Time
Joe Weisenthal
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In mid-November, Warren Buffett met with 20 MBA students from eight universities.

On his blog, University of Maryland business school professor David Kass has published notes from that meeting.

Posted Image

One student asked Buffett about his investment in Goldman Sachs that he made during the pit of the financial crisis.

In answering the question, Buffett vividly set the scene of the crisis, describing an economy that was truly teetering on the brink. And in setting that scene Buffett heaped gigantic praise on George W. Bush, which we’ve highlighted in red:

Money market funds held a lot of Lehman paper. It happened overnight, 30+ million Americans who believed money markets were safe, and then Lehman fails. This caused a major money market fund to “break the buck” and lose value. It became a great silent electronic run on money markets. There was $US3 1/2 trillion in money market funds and $US175 billion of funds flowed out in the first three days after Lehman failed. All money market funds held commercial paper. Companies like GE had a lot of commercial paper. After this, American industry literally stopped. George Bush said, “If money doesn’t loosen up, this sucker will go down” — I believe this was the greatest economic statement of all time.

This is why he backed up Paulson and Bernanke. Companies were counting on the commercial paper market. In September 2008, we came right to the abyss. If Paulson and Bernanke had not intervened, in two more days it would have been all over. BRK always has $US20 billion or more in cash. It sounds crazy, never need anything like it, but some day in the next 100 years when the world stops again, we will be ready. There will be some incident, it could be tomorrow. At that time, you need cash. Cash at that time is like oxygen.

We can only surmise exactly why Buffett found Bush’s words so powerful, but it’s the combination of understanding that the answer to the crisis was looser money and the understanding of the stakes — that it could have all totally collapsed.
Any expressed market opinion is my own and is not to be taken as financial advice
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Catweasel
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Catweasel say have no fear little one.

A money will the flow,

because master love it and all mousekind.
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Count du Monet
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Maybe it was all put on. Maybe Wall Street said to the Congress, line our pockets with gold or we will bring it all down.
The next trick of our glorious banks will be to charge us a fee for using net bank!!!
You are no longer customer, you are property!!!

Don't be SAUCY with me Bernaisse
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Sober
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peter fraser
10 Dec 2013, 11:24 PM
George Bush said, “If money doesn’t loosen up, this sucker will go down” — I believe this was the greatest economic statement of all time.

Based on Junior's other "insights" and "accomplishments", any profundity in that statement was likely accidental.

* * *

President "Bobby": Mr. Gardner, do you agree with Ben, or do you think that we can stimulate growth through temporary incentives?

[Long pause]

Chance the Gardener: As long as the roots are not severed, all is well. And all will be well in the garden.

President "Bobby": In the garden.

Chance the Gardener: Yes. In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.

President "Bobby": Spring and summer.

Chance the Gardener: Yes.

President "Bobby": Then fall and winter.

Chance the Gardener: Yes.

Benjamin Rand: I think what our insightful young friend is saying is that we welcome the inevitable seasons of nature, but we're upset by the seasons of our economy.

Chance the Gardener: Yes! There will be growth in the spring!

Benjamin Rand: Hmm!

Chance the Gardener: Hmm!

President "Bobby": Hm. Well, Mr. Gardner, I must admit that is one of the most refreshing and optimistic statements I've heard in a very, very long time.

[Benjamin Rand applauds]

President "Bobby": I admire your good, solid sense. That's precisely what we lack on Capitol Hill.

---Being There (1979)
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Strindberg
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peter fraser
10 Dec 2013, 11:24 PM
BRK always has $US20 billion or more in cash. It sounds crazy, never need anything like it, but some day in the next 100 years when the world stops again, we will be ready. There will be some incident, it could be tomorrow. At that time, you need cash. Cash at that time is like oxygen.
What does Buffett mean by cash? He can't mean deposits with commercial banks. They would be lost or not available in the circumstances he postulates.

There are only two forms of money normally recognised as cash. Treasury bank notes and reserves on deposit with a Central Bank. The latter is not available to BRK and even for a bank are not necessarily available on demand as cash. The CB may refuse a request to exchange reserves for cash if the CB considers that bank's reserves will be required to meet that bank's obligations to other banks.

The only relevant form of cash in the circumstances postulated would be Treasury bank notes.

Does BRK really always keep US$20 billion on hand in bank notes? That would be 22% of BRK's current worth of $92b.

Qantas claims to have AU$3 billion in cash. What do they really mean?
Edited by Strindberg, 11 Dec 2013, 09:41 AM.
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Count du Monet
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Quote:
 
What does Buffett mean by cash? He can't mean deposits with commercial banks. They would be lost or not available in the circumstances he postulates.


For a commercial company it means "demand deposits" which is getting sticky these days. The traditional demand deposit was the chequing account paying no interest. This is meant to be a true demand deposit to pay for bills and such like. Originally all the cash in the demand deposit was meant to be kept on hand and this is where the story of the fractional reserve arose when only 10% of the demand deposit was kept on hand. This was watered down even more when the fractional reserve cash was traded for highly liquid treasuries.

The interest bearing savings account are a different matter and were once mainly term deposit. Another factor was bank bills which were also time locked. But very popular now is the "at call" interest bearing account........which could turn into something sticky.

But in current era of history the dollars will always be available on demand. If too many dollars are being demanded then the basic CB tool is to lift rates and too few lower rates.

The critical factor measuring currency supply is the paper money in circulation outside of bank reserves. The central bank does keep an ample supply of uncirculated of physical cash to be used in an emergency. But if forced to use this the central bank in theory will be soon raising rates. Immediately post GFC cash in circulation rose by 15% over 3 months or so in Aus.

But there seems to be a limit on how much net new cash is circulated long term since Basel One for floating currencies. The typical target rate is an average of 6.5% more cash added per pa. This seems to be the Milton Friedman doctrine of chronic but "low" inflation.

Banking is a lot more powerful these days using computer tools. Banks can crawl out on the limb far further in relative safety these days. The problem is the bank monkey will always test limits on how far they can go out on the limb.
The next trick of our glorious banks will be to charge us a fee for using net bank!!!
You are no longer customer, you are property!!!

Don't be SAUCY with me Bernaisse
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Elastic
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"WARREN BUFFETT: George W. Bush Once Said The Greatest Economic Statement Of All Time"

Reminds me of the theory that if you give 1000 monkeys 1000 typewriters and an infinite amount of time, they will produce all the works of Shakespeare.
Only a rat can win a rat race.

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propertymogul
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Strindberg
11 Dec 2013, 09:37 AM
What does Buffett mean by cash? He can't mean deposits with commercial banks. They would be lost or not available in the circumstances he postulates.

There are only two forms of money normally recognised as cash. Treasury bank notes and reserves on deposit with a Central Bank. The latter is not available to BRK and even for a bank are not necessarily available on demand as cash. The CB may refuse a request to exchange reserves for cash if the CB considers that bank's reserves will be required to meet that bank's obligations to other banks.

The only relevant form of cash in the circumstances postulated would be Treasury bank notes.

Does BRK really always keep US$20 billion on hand in bank notes? That would be 22% of BRK's current worth of $92b.

Qantas claims to have AU$3 billion in cash. What do they really mean?
Yes the Count is correct, under the accounting standards cash is essentially "at demand deposits". This would normally be deposits with commercial banks in the form of cheque accounts and term deposits with terms 3 months or less and able to be redeemed at very short notice if necessary. Longer term deposits are currently debateable as to whether they are "cash", most companies include these in their cash balances though (I believe correctly) as they can generally be redeemed at short notice if necessary.
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barns
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Sober
11 Dec 2013, 07:59 AM
Based on Junior's other "insights" and "accomplishments", any profundity in that statement was likely accidental.

* * *

President "Bobby": Mr. Gardner, do you agree with Ben, or do you think that we can stimulate growth through temporary incentives?

[Long pause]

Chance the Gardener: As long as the roots are not severed, all is well. And all will be well in the garden.

President "Bobby": In the garden.

Chance the Gardener: Yes. In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.

President "Bobby": Spring and summer.

Chance the Gardener: Yes.

President "Bobby": Then fall and winter.

Chance the Gardener: Yes.

Benjamin Rand: I think what our insightful young friend is saying is that we welcome the inevitable seasons of nature, but we're upset by the seasons of our economy.

Chance the Gardener: Yes! There will be growth in the spring!

Benjamin Rand: Hmm!

Chance the Gardener: Hmm!

President "Bobby": Hm. Well, Mr. Gardner, I must admit that is one of the most refreshing and optimistic statements I've heard in a very, very long time.

[Benjamin Rand applauds]

President "Bobby": I admire your good, solid sense. That's precisely what we lack on Capitol Hill.

---Being There (1979)
One of my favourite movies. I pretty much based my career on his example.
“You Keep Using That Word, I Do Not Think It Means What You Think It Means” - Inigo Montoya
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Count du Monet
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"being there" is a play on Heidegger's "Dasein". The best translation of the word into English is using the borrowed French term "presence". It means the "right-now" in adverse to past and future.
The next trick of our glorious banks will be to charge us a fee for using net bank!!!
You are no longer customer, you are property!!!

Don't be SAUCY with me Bernaisse
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