Warren Buffet was on Charlie Rose the other night, and if you haven’t heard by now he’s a genius for analogies.
He has referred to the United States economy as a premier athlete who has had a heart attack. This isn’t the time to place blame or lecture the athlete; it’s the time to administer CPR. CPR is what the Congress needs to do in passing the rescue bill. Think about all the people who are retiring and have had their 401Ks or IRA hammered down to nearly nothing. Think about Norway’s pension fund that allows the country to invest its oil and gas revenues into stocks and bonds. (They had significant exposure to Lehman Brothers – Lehman was in charge of a portion of their fund.)
Buffet also talked about how greed gets the best of us. How your next-door neighbor is buying another house and you want to get in on the game. Buffet talked about the innovators, imitators, and then the idiots. Everyone’s chasing the dream of making it rich. The idea here is that if you don’t buy a house now, next year the prices will increase. Everyone is doing it and if you’re not in on it, then you’re an idiot.
He also said that the only way smart people lose money is if they’re over leveraged. Interesting, since the key aspect of buying property is the way in which you can leverage other people’s money to make money. But there’s no need to get over leveraged and take on too much risk – you could lose your job, the market could collapse, there could be a natural disaster, or something else could happen to completely change your financial status.
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