Charlie Munger on how he'd make Volckler look like a sissy

Munger was interviewed by Robert Lenzner of Forbes.

On Berkshire Hathaway
"Smart people can sense when the market price is a little ahead of itself and when it's a little behind. I sold 2,000 shares to my children at $70,000 a share. Having a market price that is split 50-to-1 and being in the S&P 500 index we can easily handle selling 1% of the shares every year (for Buffett's gifts to the Gates Foundation). Ben Graham (legendary investment guru) said if it's a good investment it's likely to be a good speculation. We're going into a sound proposition on the expectation it will last for our lifetime. We have a lot of smart people at Berkshire. We have extreme centralization at headquarters where a single person (Buffett) makes all the capital allocation decisions, and we have decentralization among our operations without a big bureaucracy. That's the Berkshire Hathaway model."

Charlie and Warren
"We find the same things humorous. That's why we get along so well. It's hard to tell who is wittier. My humor is Jewish humor. Maybe I'm part Jewish."

"How would you make Paul Volcker look like a sissy if you regulated Wall Street?"
I would economically restrain what investment banks and banks do more than he would. I would separate derivatives from the basic bridges of civilization. We don't want civilization contaminated by extreme speculation. I'd ban all the derivatives trading except for metals and commodities. The new stuff is a marvelous gambling game. It swamps any commercial transactions that are needed. Gambling does not become wonderful just because it pertains to commerce. It's a casino. You shouldn't be able to use $500,000 to do a $5 million trade.

"If I were the Lee Kwan Yew (formidable former Singapore leader) I'd make finance far less attractive to go into. I'd raise taxes, maybe put a Tobin (Yale economist) tax on all transactions. If Warren was the benevolent despot of the U.S., these things (derivatives) would have never existed. Warren wrote a letter in 1982 objecting to the creation of the S&P 500 derivative contract. Its message: This is going to do more harm than good. He tried to prevent it from happening. I think he believes civilization would be better if they didn't exist. Still, Warren has great difficulty not buying a mispriced item in the financial market. We bought derivatives even though we didn't believe in their existence.

On Wall Street
"Wall Street has too much wealth and political power. The system is dysfunctional for our country. There's more honor in investment management than in investment banking. I'm terribly conflicted. I hate it that bright young people are going into finance when all the Chinese are going into engineering. If we don't make substantial changes in the system we'll have another big mess."

On Human Nature
"I'm used to people with very high IQs knowing how to recognize reality, but there's a huge human tendency where it may be instructive to think that whatever you're doing to succeed is all right. These people say to themselves: I need it and I want it, therefore I must have it. I come from a culture that sees reality better. Lehman under Dick Fuld was pathological, operating like a boiler room. It reminds me of a quote from the Mikado: 'I have a little list of those who will not be missed.'"

On the acquisition of Chinese electric car maker BYD and Iscar, an Israeli machine tool manufacturer.
"BYD and Iscar are the first two technology companies ever acquired by Berkshire and a break with the past. I enlisted the help of Dave Sokol (chairman of MidAmerican Energy, a subsidiary of Berkshire and favorite to succeed Buffett as CEO) to convince Warren it was a good investment. (Berkshire owns 10%, the limit for a foreign interest. BYD is trying to solve the engineering and production problems useful to civilization. BYD has 16,000 engineers and its founder, Wang Chuanfu (the wealthiest Chinese entrepreneur with $5.1 billion in BYD shares) is behaving like the Thomas Edison of today.

On Himself
"I went where there was dumb competition (investment management). We do so well in spite of being so stupid. That's why there's hope for you!"