Warren Buffett says in future Wall Street chiefs should go broke - and their wives
Warren Buffett, the billionaire investor, has hit out at pay practices on Wall Street, attacking the lack of reform despite two years passing since the financial crisis struck.
By Richard Blackden, US Business Editor
Published: 8:59PM BST 05 Oct 2010
The 80-year old billionaire said: 'Wall Street does a lot of good things and then it has this casino.'
"People have a propensity to gamble, and it gets made easier and easier for them," Mr Buffett told a conference in Washington DC yesterday. "One of the problems we still have is we have unbalanced incentives for managers of huge financial institutions." In future, chief executives of banks who need government assistance should "go broke", said Mr Buffett. Their wives "should go broke, too", he added.
The prospect of another round of bank bonuses is likely to inflame public opinion in the US, where the broader economic recovery is flagging. Banks have been forced to split off some of their riskier trading activities because of the Dodd-Frank law - the financial reform act signed into law in the summer - but critics say it does little to remove the incentives to pursue short-term profits.
Mr Buffett's company, Berkshire Hathaway, is a major investor in American banks, with a stake in Goldman Sachs and Wells Fargo. The 80-year old billionaire, who runs the company out of Omaha, Nebraska, with his long-term colleague Charlie Munger, said "Wall Street does a lot of good things and then it has this casino. It's like a church that's running raffles on the weekend."
As in Britain, banks are keen to counter an impression that they are failing to do enough for the recovery. Goldman Sachs, for example, last week began an advertising campaign designed to show its role in helping create jobs. Despite the difference in the fortunes of those on Wall Street and many Americans in other industries, analysts have said that banks may decide to cut jobs in coming months as trading revenues decline.
Meredith Whitney, for example, has forecast that up to 80,000 finance jobs could go over the next 18 months. Mr Buffett also told Fortune magazine's Most Powerful Women conference that investors are "making a mistake" if they chase a rally in bonds.
The price of US two-year government bonds has raced to a record high this week as investors see little to spark a more robust recovery. "It's quite clear that stocks are cheaper than bonds," Mr Buffett said. "I can't imagine anyone having bonds in their portfolio when they can own equities."
