Tao of Charlie Munger: A Compilation of Quotes from Berkshire Hathaway's Vice Chairman on Life, Business, and the Pursuit of Wealth With Commentary by David Clark

by David Clark

“AIG is a lot like GE. It is a fabulously successful insurance operator, and with success it morphed into a massive carry business—borrowing a lot of money at one price and investing it at another price. AIG was a big operator that was a lot like GE Credit. We never owned either because even the best and wisest people make us nervous in great big credit operations with swollen balance sheets. It just makes me nervous, that many people borrowing so many billions.” – Well, it turned out that Charlie was right, the carry trade nearly bankrupted both AIG and GE in 2007–09. And in 2015 GE began the process of selling off its financial division. Borrowing short term at cheap rates and lending it out long term at higher rates is an easy way to make tons of money as long as one can keep rolling over the short-term loans at cheap rates. But if short-term interest rates climb above what the money was borrowed at or the bankers decide not to roll over the short-term loans, the whole thing collapses like a house of cards.