Class News

Jim Rogers doesn't mince words about the crisis

Business Week
February 26, 2009

(more about Rogers, and more, and more, and more, and even more)

In 1970 a young Wall Streeter named Jim Rogers hooked up with George Soros to start the legendary Quantum Fund. The ensuing decades have seen Rogers build an iconoclastic career as an author, adventurer, and creator of the Rogers International Commodities Index. And throughout, Rogers — now based in Singapore — has remained an outspoken global investor. Today is no different. He has harsh words for former Fed Chairman Alan Greenspan, suggests President Barack Obama and his economic team are not up to the task, and thinks tough love is the answer for America.

What do you think of the government's response to the economic crisis?

Terrible. They're making it worse. It's pretty embarrassing for President Obama, who doesn't seem to have a clue what's going on — which would make sense from his background. And he has hired people who are part of the problem. [Treasury Secretary Tim] Geithner was head of the New York Fed, which was supposedly in charge of Wall Street and the banks more than anybody else. And as you remember, [Obama's chief economic adviser, Larry] Summers helped bail out Long-Term Capital Management years ago. These are people who think the only solution is to save their friends on Wall Street rather than to save 300 million Americans.

So what should they be doing?

What would I like to see happen? I'd like to see them let these people go bankrupt, let the bankrupt go bankrupt, stop bailing them out. There are plenty of banks in America that saw this coming, that kept their powder dry and have been waiting for the opportunity to go in and take over the assets of the incompetent. Likewise, many, many homeowners didn't go out and buy five homes with no income. Many homeowners have been waiting for this, and now all of a sudden the government is saying: "Well, too bad for you. We don't care if you did it right or not, we're going to bail out the 100,000 or 200,000 who did it wrong." I mean, this is outrageous economics, and it's terrible morality.

You have said Bear Stearns and Lehman would still be around if Greenspan hadn't bailed out Long-Term Capital Management in 1998. Can you explain?

Well, if Long-Term Capital Management had been allowed to fail, Lehman and the rest of them would've lost a huge amount of money, their capital would've been impaired, and it would've put a terrible crimp on Wall Street. It would've slowed them down for years. Instead of losing capital, losing assets, and losing incompetent people, they hired more incompetent people.

Should AIG have been allowed to fail, too?

First of all, banks and investment banks and insurance companies have been failing for hundreds of years. Yes, we would've had a terrible two years. But you're dragging out the pain. We had 10 years of the worst credit excesses in world history. You don't wipe out something like that in six months or a year by saying: "Oh, now let's wake up and start over again."

What about Citigroup? What about the car companies?

They should be allowed to go bankrupt. Why should American taxpayers put up billions to save a few car companies? They made the mistakes! We didn't make the mistakes! I'm sure they'll give them the money, but I'm telling you, it's a mistake. It's a horrible mistake.

I totally understand what you're saying, but the banks are under massive pressure.

They all took huge, huge profits. Who was the head of Citigroup? Chuck Prince? I mean, how many hundreds of millions of dollars did Prince take out of the company? How many hundreds of millions of dollars did other Citibank execs take out of the company? Wall Street has paid something like $40 billion or $50 billion in bonuses in the past decade. Who was that guy who was the head of Merrill Lynch?

Stan O'Neal?

Right, Stan O'Neal. He got $150 million for leaving, even though he ruined the company. Look at the guy at Fannie Mae, Franklin Raines. He did worse accounting than Enron. Fannie Mae and Freddie Mac alone did nothing but pure fraudulent accounting year after year, and yet that guy's walking around with millions of dollars. What the hell kind of system is this?

Are you worried the economic crisis will lead to political turmoil in China and elsewhere?

I absolutely am. We're going to have social unrest in much of the world. America won't be immune.

What does all this mean from an investment standpoint?

Always in the past, when people have printed huge amounts of money or spent money they didn't have, it has led to higher inflation and higher prices. In my view, that's certainly going to happen again this time. Oil prices are down at the moment, but that's temporary. And you're going to see higher prices, especially of commodities, because the fundamentals of commodities are enhanced by what's happening.

Which commodities are worth buying or holding on to?

I recently bought more of all of them. But I really think agriculture is going to be the best place to be. Agriculture's been a horrible business for 30 years. For decades the money shufflers, the paper shufflers, have been the captains of the universe. That is now changing. The people who produce real things [will be on top]. You're going to see stockbrokers driving taxis. The smart ones will learn to drive tractors, because they'll be working for the farmers. It's going to be the 29-year-old farmers who have the Lamborghinis. So you should find yourself a nice farmer and hook up with him or her, because that's where the money's going to be in the next couple of decades.