- Wealth PMS (50L+)
Buffett on CIT’s recent troubles:
CIT pays 13% plus gargantuan fees of 5% or so to get rescue funding, and they had to put up 5x worth collateral. Buffett makes the point that they can’t compete in a world where the government guarantees debt of banks who can thus borrow at 1% or so, even cheaper than Buffett himself. The “raw material” of the business is money, and if some banks can get it cheaper than the rest, they will win.
Isn’t this socialism? Some banks get to borrow cheap because the government backs their debt. No one else can compete because these buggers get the cheapest money. The biggest will survive, because now anything is too big to fail.
America is seeming more and more like India.