Incentives

They don’t give me budgets, so they don’t — there’s no feeling that they have to come through with given numbers or I’ll be embarrassed in public in terms of publishing earnings or anything of the sort. We have no incentives to cause people to do anything that would go against their conscience or play games or cut corners or anything of the sort. And, overall, I think it’s worked pretty well. It isn’t perfect. You can’t have 250,000 people in the city without having something going on at some point. And we do have 250,000 people working. But I’m not unhappy with our batting average. Charlie? CHARLIE MUNGER: Well, I’d like to address the recent turmoil and its relation to politics. After Enron totally shocked the nation with the gross amount of folly and misbehavior, our politicians passed Sarbanes-Oxley, and it has now turned out that they were shooting at an elephant with a pea shooter. And low and behold, we have a convulsion that makes Enron look like a tea party. And I confidently predict that we will have changes in regulation and that they won’t work perfectly. (Laughter) Human nature always has these incentives to rationalize and misbehave, and the learned professions very often fail in their basic responsibility to be learned. And we’re going to have this turmoil as far ahead as you can see.

WARREN BUFFETT: Yeah, I would say this. The — (applause) — problem, well, as I see it — although, you know, I have read no reports internally or anything like that — but it looks like to me like Wells made some big mistakes in what they incentivized. And as Charlie says, there’s nothing like incentives, but they can incentivize the wrong behavior. And I’ve seen that a lot of places. And that clearly existed at Wells. The interesting thing is, to the extent that they set up fake accounts, a couple million of them, that had no balance in them, that could not possibly have been profitable to Wells. So, you can incentivize some crazy things. The problem is — I’m sure is that — and I don’t really have any inside information on it at all — but when you find a problem, you have to do something about it. And I think that’s where they probably made a mistake at Wells Fargo. They made it at Salomon. I mean, John Gutfreund would never have played around with the government. He was the CEO of Salomon in 1991.