Jim Rogers & Waren Buffett Singing Same Song

ToddSullivan
March 17th, 2009

Check out the following videos…

Courtesy All Things Jim Rogers. This ought to be the first stop for Jim Rogers devotees.

Part 1

Jim Rogers told Bloomberg that the U.S. risks sending the world into a depression as its bailouts of failed companies rob healthy businesses of capital.

Part 2

Visit All Things Jim Rogers for rest of videos (2 more).

Now in his recent letter to shareholders Berkshire’s (BRK.a) Warren Buffett recently said:

“Clayton’s lending operation, though not damaged by the performance of its borrowers, is nevertheless threatened by an element of the credit crisis. Funders that have access to any sort of government guarantee – banks with FDIC-insured deposits, large entities with commercial paper now backed by the Federal Reserve, and others who are using imaginative methods (or lobbying skills) to come under the government’s umbrella – have money costs that are minimal. Conversely, highly-rated companies, such as Berkshire, are experiencing borrowing costs that, in relation to Treasury rates, are at record levels.

Moreover, funds are abundant for the government-guaranteed borrower but often scarce for others, no matter how creditworthy they may be. This unprecedented “spread” in the cost of money makes it unprofitable for any lender who doesn’t enjoy government-guaranteed funds to go up against those with a favored status. Government is determining the “haves” and “have-nots.” That is why companies are rushing to convert to bank holding companies, not a course feasible for Berkshire.

Though Berkshire’s credit is pristine – we are one of only seven AAA corporations in the country – our cost of borrowing is now far higher than competitors with shaky balance sheets but government backing. At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one.”

This is the real cost of the government bailouts. Healthy enterprises are being starved for capital. If they get it, its cost is such that the scope of the economic activity they can produce from it is limited because of what it took to get it.

This is severely hampering economic recovery. The government THINKS they are helping by making the guarantees. The truth is they are hurting healthy companies.

This just ass backwards. Healthy companies MUST have a lower borrowing cost than those who aren’t. This is what is called “unintended consequences” of government action. Try to save a few companies and then you hurt thousands more.

Disclosure (“none” means no position):None

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