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Charlie Munger: ‘Getting accounting integrity right has huge implications for future of mankind’

December 21st, 2010

In this remarkable interview, Stanford University’s professor Joseph A. Grundfest talks Charlie T. Munger, vice-chairman of Berkshire Hathaway. It might be an old interview (I think it dates from about December 2008) but it remains a truly remarkable piece and, in my view, it is a must watch.

Munger puts his finger on the reasons for the recent economic collapse in the developed world, and why we remain in such a mess. The key culprit is the accountancy profession which he accuses of having sold out – he said the “profession” has become a “sewer”, implying that accountants:-

  1. have totally lost their integrity
  2. are prepared to do just about anything to earn a fast buck.
  3. are prepared to conspire with corrupt managements to deceive and shaft investors, regulators, governments, taxpayers etc
  4. had no qualms about “throwing out the sound accounting and switching to the phoney accounting”

Munger said:

“I would argue that a majority of the horrors we faced would not have happened if the accounting profession were organized properly.

“In other words, [the accountants] have a position from which, if they behaved intelligently and correctly, they could prevent a huge amount of all that’s wrong with the system. And they fail utterly, time after time, after time.

“And they are way too liberal in providing the kind of accounting the financial promoters want. They have sold out and they do not even realise that they’ve sold out … Compared to what could reasonably be with intelligence and honour, the accounting profession is a sewer.”

He also said that the system whereby the brightest graduates are lured to Wall Street was “evil and corrupt”.

This interview really blew me away. I agree with nearly 100% of what Munger, 86, said here. For Munger’s views on investment bankers sector and derivatives traders watch this clip (here’s a clue – he says they’re “out to rook their own customers”).

Short URL: http://www.ianfraser.org/?p=3095

Posted by on Dec 21 2010. Filed under Blog. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

6 Comments for “Charlie Munger: ‘Getting accounting integrity right has huge implications for future of mankind’”

  1. Well said Prof! Thanks for the article Ian. I would have missed this otherwise.

  2. This is the most important interview on the banking crisis I have seen – not least because it pinpoints the fundamental reason for the crisis by using one word I have not heard in a banking context for as long as I can remember – and that is the word ‘honourable’. Lack of honourable conduct was the single greatest cause of the crisis.

  3. [...] In short, the ‘Big Four’ firms became so focused on their own commercial success they started to neglect their primary role of keeping financial markets honest.  (For further information on this you should look at the findings of the House of Lords inquiry into the audit profession and the views of Berkshire Hathaway vice-chairman Charlie Munger). [...]

  4. Graham, I agree.

  5. [...] not be giving any encouragement to ‘Big Four’ accountancy firms at the moment, given their pivotal role in fomenting the global financial crisis (thanks in part to the inadequacy of their auditing of banks and financial institutions from the [...]

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