Schroeder: America Will Miss Munger-As-Mencken

Thanks to Matt for passing this along.

Munger is not only a critic and Buffett’s partner, but also a lawyer, real estate investor, CEO and philanthropist. He has used his sharp tongue in service of decisive action to avert intolerable risk. One episode in the late 1980s, when the savings and loan industry was using accounting tricks to create capital out of thin air, sticks out in my mind as perhaps his finest hour.

Bailout and Backlash

The S&Ls were careening toward a crisis of widespread bankruptcies that would destroy depositor savings, require a taxpayer bailout and result in a furious public backlash. Munger, who is chairman and chief executive officer of Berkshire’s savings and loan operation, Wesco Financial, foresaw that Wesco’s better behavior wouldn’t prevent it from being tainted by association.

He not only throttled back Wesco’s lending, but also took an extreme stand to distance Wesco from the other savings and loans by resigning from the U.S. League of Savings Institutions in a letter. In it, he likened the trade association to metastasizing cancer cells and called its lobbying practices “flawed, indeed disgraceful.”

Quixotic Move

It was a quixotic move, one that only a person who was willing to be detested by an entire industry would make. The move also paid off when the S&L crisis erupted and Wesco avoided being splattered with mud. It was Munger’s actions in the S&L crisis that started Berkshire on its road to being held up as the moral exemplar of corporate America. Its reputation was later cemented when Buffett assumed the role of interim chairman of Salomon Brothers Inc. to save the company, in which Berkshire had a major investment, from bankruptcy after Salomon was caught covering up an employee’s rigging of Treasury-bond auctions.

I’ve wondered what makes a man a Munger. He isn’t trying to be a hero. Perhaps a person who feels that something innate in him means he will be disliked finds that easier to tolerate if he provokes the disapproval himself. It’s ironic, or predictable -- maybe even both -- that a man who cultivates enemies with broadsides against the comfortably selfish has won a large audience of fans, and I mean fans in the fanatical sense of the word.