Roger Lowenstein: "Make Every Investment Count"

This article/transcript is a guest contribution from Consuelo Mack's Wealthtrack.

CONSUELO MACK: This week on WealthTrack, the Financial Thought Leader considered a must read by top investors. Best selling journalist Roger Lowenstein shares his encyclopedic knowledge of the world of finance and investing next on Consuelo Mack WealthTrack.
Hello and welcome to this edition of WealthTrack. I’m Consuelo Mack. Two years after the global financial collapse, we are still trying to understand all the factors that contributed to the near catastrophe and its recovery. One of the few business writers with the breadth and analytic ability to unravel this puzzle is Roger Lowenstein, this week’s Financial Thought Leader guest.
Lowenstein has never cringed from writing about big, complex subjects. He has written riveting, informed books about the crisis in pension debt, the great stock market bubble of 2000, the collapse of Long-Term Capital Management, the hedge fund that almost brought Wall Street to its knees in 1998, and what many consider to be the definitive biography of investment icon, Warren Buffett. His latest book, The End of Wall Street, came out this spring and goes behind the scenes with all of the major political and financial players in the crisis. Thanks to some 180 interviews and his skilled reporting and writing, Lowenstein offers a remarkable, comprehensive insiders’ view of the drama and decisions of the worst financial crisis on Wall Street since the Great Depression.
Lowenstein spent a large part of his journalistic career at The Wall Street Journal as a staff reporter, later becoming a columnist, first for the journal’s signature “Heard on the Street” column and then his own column, “Intrinsic Value.” Lowenstein now writes for Bloomberg and The New York Times magazine. He is also known as knowledgeable value investor. He’s an outside director of the legendary Sequoia Fund and has contributed a commentary to the sixth edition of the classic, value investing bible, Security Analysis by Graham and Dodd. According to press-shy hedge fund titan Seth Klarman, anything written by Roger Lowenstein is a must read.

In a recent interview, I asked Lowenstein, what has changed on Wall Street.

ROGER LOWENSTEIN: Well, I think people are more frightened for one. It’s harder to get a loan. It’s harder to get a mortgage. There are fewer banks out there. They are bigger. They’re more concentrated. We don’t have these scrappy firms, Bear Sterns, Lehman Brothers. The ones we have, JP Morgan, Goldman, they are very big. They are very close to the government. There are fears now that having seen such a cyclone rip through Wall Street that we’re all vulnerable. You saw what happened when Greece nearly failed and had to be bailed out. Suddenly, was it going to be Portugal? Was it going to be Spain? Britain now is putting through this horrible austerity plan so that they are not the next Greece. We’re worried about municipalities in the United States- state governments, state finances, even the US government. I think anyone who said this can’t happen, they can never go under, it’s going to be a while before we say that about almost anybody on Wall Street or in finance.

CONSUELO MACK: You’ve covered Wall Street for a long time and you’ve actually anticipated some of the crises that have occurred in the past through your writings. Are you seeing any seeds of future crises being planted now?

ROGER LOWENSTEIN: Well, we really have the seed-- unfortunately it’s more than planted, it’s starting to germinate, and that is the seed of public debt, government debt fueled by entitlement obligations. We really have two things. Governments at a state level, at the local level and at a federal level have tremendous debts and they also have these tremendous obligations, basically to retirees and for healthcare. If you put it at a family level: suppose you had a very big mortgage. But suppose in addition to that, you had grandma and grandpa and they’re going to live a long time and they’re not working and you’ve got to take care of them. Suppose the banker came to you one day and said, this is an obligation, it’s not on your books but they eat every day; they go to the movies twice a week, whatever. We’re going to add up everything it’s going to cost for you to support them over the next 20 years of their retired lives and we’re going to roll that into your mortgage, put that on your private debt. What would happen to your debts? You’d be broke because suddenly this obligation that is not stated is suddenly stated in part of your mortgage and you can’t carry it. That is what is starting to happen. And California, New Jersey, Illinois, Puerto Rico – a horror story, by the way – Greece, Spain, governments, democracies, seem to have a problem. The problem is how do they raise money now for a future expense? The future has arrived. That I think is the next one.