Banks ‘n Loans

This has to be my quote of the week:

Warren Buffet in the Berkshire Hathaway annual report and letter to shareholders:

Some major financial institutions have, however, experienced staggering problems because they engaged in the “weakened lending practices” I described in last year’s letter. John Stumpf, CEO of Wells Fargo, aptly dissected the recent behavior of many lenders: “It is interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine.

(My emphasis)

And this isn’t far behind:

Now let’s move to the gruesome. The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.

The airline industry’s demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it.



Wally, I know how much you just love your discount airlines :P

Reminds me of some of the discounting practices back in the late 80’s when computer hardware (previously hideously expensive) was becoming a commodity. A colleague described it as “I know! Let’s sell it at a loss and make it up on volume.”

Comment by MikeFitz | March 6th, 2008 10:53 pm | Permalink

By inventing new ways to lose money they’re probably hoping newcomers to their bank will fall for their tricks and deposit their hard earned cash.

Comment by river | March 7th, 2008 7:26 pm | Permalink

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