David Rosenthal: evaluation

Transcript context

…Yes, it was Chancellor on Brink of Second Bailout for Banks which allegedly is mocking the fractional reserve banking system. But yes it is a very deep reference in the midst of the financial crisis. Indeed, indeed. Here's Warren and then Charlie too, he’s freshly unencumbered by the weight of having to deal with his wealth. He's back in the saddle. He's not literally unretired, but like figuratively unretired again for the third time, ready to go to work. And he has seen this movie before. They were there, they were leading players in the dress rehearsal of Salomon and early 90s. All right, I think we know what to do here. The whole thing takes off. I remember this so well, in March of 2008 when Bear Stearns, the story of an investment bank failed, just like Salomon, the problem at Bear was that they failed because they had in-house hedge funds that were mortgage-backed security hedge funds and those had huge losses. That wasn’t why it failed. It failed because Bears counterparties stopped trusting their paper and stopped being willing to trade with them. Like we saw a Salomon, a huge amount of their capital base turns over overnight because you're settling trades and your counterpart is on those trades. If their counterparties no longer trust that you're good for the money, they're going to stop trading forward to you and then the vicious cycle comes to a screeching halt. That's what happened with Bear. During the course of one week in March from March 10th which was Monday to the end of the week, which would have been, what? I guess the 14th, the Friday. Bear Stearns stock had started the week trading at $63 a share and by Friday they're toast. They’re bankrupt. Over the weekend, the FED engineered an asset sale to JP Morgan for $2 a share. The old Bear Stearns entity is completely bankrupt, the good assets, the non-toxic assets get put into an LLC that the government creates and JP Morgan buys it for $2 a share backstopped by government money. If anything goes wrong, JP Morgan is not on the hook. It's bad, never seen anything like that. Berkshire, of course, I don't know if they got a call, I assume Warren probably got a call from somebody about Bear Stearns that week, decided not to save them or bail them out. But Berkshire has $37 billion of cash sitting on its books at this point which today seems kind of quaint compared to Apple and Microsoft and the like. But you know, back then nobody else had that kind of cash anywhere. The only people who have that are governments. Right. I have to assume the most valuable company in the world at that point probably wasn't an oil company and probably was in the neighborhood of $2-300 billion.…

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