Warren Buffet, worth 40 billion, received billions more from taxpayer funded bailouts
All of the sudden Buffet's insistence on backing Obama in the elections last year makes a lot more sense.
Quote:
When I was 14, Warren Buffett wrote me a letter.
It was a response to one I?d sent him, pitching an investment idea. For a kid interested in learning stocks, Buffett was a great role model. His investing style ? diligent security analysis, finding competent management, patience ? was immediately appealing.
Buffett was kind enough to respond to my letter, thanking me for it and inviting me to his company?s annual meeting. I was hooked. Today, Buffett remains famous for investing The Right Way. He even has a television cartoon in the works, which will groom the next generation of acolytes.
But it turns out much of the story is fiction. A good chunk of his fortune is dependent on taxpayer largess. Were it not for government bailouts, for which Buffett lobbied hard, many of his company?s stock holdings would have been wiped out.
Berkshire Hathaway, in which Buffett owns 27 percent, according to a recent proxy filing, has more than $26 billion invested in eight financial companies that have received bailout money. The TARP at one point had nearly $100 billion invested in these companies and, according to new data released by Thomson Reuters, FDIC backs more than $130 billion of their debt.
To put that in perspective, 75 percent of the debt these companies have issued since late November has come with a federal guarantee. (Click chart to enlarge in new window)
Without FDIC?s debt guarantee program, even impregnable Goldman would have collapsed.
And this excludes the emergency, opaque lending facilities from the Federal Reserve that also helped rescue the big banks. Without all these bailouts, the financial system would have been forced to recapitalize itself.
Banks that couldn?t finance their balance sheets would have sold toxic assets at market prices, and the losses would have wiped out their shareholder?s equity. With $7 billion at stake, Buffett is one of the biggest of these shareholders.
He even traded the bailout, seeking morally hazardous profits in preferred stock and warrants of Goldman and GE because he had ?confidence in Congress to do the right thing? ? to rescue shareholders in too-big-to-fail financials from the losses that were rightfully theirs to absorb.
Keeping this in mind, I was struck by Buffett?s letter to Berkshire shareholders this year:
?Funders that have access to any sort of government guarantee ? banks with FDIC-insured deposits, large entities with commercial paper now backed by the Federal Reserve, and others who are using imaginative methods (or lobbying skills) to come under the government?s umbrella ? have money costs that are minimal,? he wrote.
?Conversely, highly-rated companies, such as Berkshire, are experiencing borrowing costs that ? are at record levels. Moreover, funds are abundant for the government-guaranteed borrower but often scarce for others, no matter how creditworthy they may be.?
It takes remarkable chutzpah to lobby for bailouts, make trades seeking to profit from them, and then complain that those doing so put you at a disadvantage.
Elsewhere in his letter he laments ?atrocious sales practices? in the financial industry, holding up Berkshire subsidiary Clayton Homes as a model of lending rectitude.
Conveniently, he neglects to mention Wells Fargo?s toxic book of home equity loans, American Express? exploding charge-offs, GE Capital?s awful balance sheet, Bank of America?s disastrous acquisitions of Countrywide and Merrill Lynch, and Goldman Sachs? reckless trading practices.
And what of Moody?s, the credit-rating agency that enabled lending excesses Buffett criticizes, and in which he?s held a major stake for years? Recently Berkshire cut its stake to 16 percent from 20 percent. Publicly, however, the Oracle of Omaha has been silent.
This is remarkably incongruous for the world?s most famous financial straight-shooter. Few have called him on it, though one notable exception was a good article by Charles Piller in the Sacramento Bee earlier this year.
Buffett didn?t respond to my email seeking a comment.
What saddens me is that Buffett is uniquely positioned to lobby for better public policy, but he?s chosen to spend his considerable political capital protecting his own holdings.
If we learn one lesson from this episode, it?s that banks should carry substantially more capital than may be necessary. You would think Buffett would agree. He has always emphasized investing with a ?margin of safety? ? so why shouldn?t banks lend with one?
Yet he mocked Tim Geithner?s stress tests, which forced banks to replenish their capital. Why? Is it because his banks are drastically undercapitalized? The more capital they?re forced to raise, the more his stake is diluted.
He points to Wells Fargo?s deposit funding model being more robust than investment banks?, but that?s no excuse for letting tangible equity dwindle to three percent of assets. At that low level, the capital structure would have collapsed were it not for bailouts.
And by the way, the strength of Wells? funding model is a result of FDIC insurance, among the government subsidies Buffett complains about in this year?s letter.
To me this feels like a betrayal. There?s a reason he?s Warren Buffett and not, say, Carl Icahn.
As Roger Lowenstein wrote in his 1995 biography of Buffett, ?Wall Street?s modern financiers got rich by exploiting their control of the public?s money ? Buffett shunned this game ? In effect, he rediscovered the art of pure capitalism ? a cold-blooded sport, but a fair one.?
But there?s nothing fair about Buffett getting a bailout, about exploiting the taxpaying public for his own gain. The na?ve 14-year-olds among us thought he was better than this.
What would Ben Graham say?
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"A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both."-Milton Friedman
If it sounds like Karl Marx, acts like Benito Mussolini, lies like Joe Isuzu, attracts followers eerily reminiscent of those that Jim Jones attracted and stumbles like Bozo the Clown, it's probably Barack Obama!!!!!
Buffet used to be a value investor but not anymore. In fact he has not been one for a very long time, on the other hand Walter Shloss is a Value Investor in the true sense. I think Buffet is slowly going senile and I really never understood why everyone hangs on to every word he utters like they were straight from an infallible diety.
He used to call Derivatives Weapons of Financial Mass Destruction but he has held billions of Dollars in Derivative positions. He has broken every rule in his imaginary rule book.
Just another old fart trying to cement a legacy ... any legacy.
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"Hell is the Impossibility of Reason"
Buffet used to be a value investor but not anymore. In fact he has not been one for a very long time, on the other hand Walter Shloss is a Value Investor in the true sense. I think Buffet is slowly going senile and I really never understood why everyone hangs on to every word he utters like they were straight from an infallible diety.
He used to call Derivatives Weapons of Financial Mass Destruction but he has held billions of Dollars in Derivative positions. He has broken every rule in his imaginary rule book.
Just another old fart trying to cement a legacy ... any legacy.
Thank you! I'm glad to see someone else can recognize this.
His "all-in" move this week is the epitome of this characteristic.
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Because if it were easy, I wouldn't be interested.
God has a better plan for my life, than I do, for my own.
Go, weave your snares with logic and design. The speed of my flight will take your breath away. - Mirza Ghalib
Yes, this is a partisan issue, right? Republicans are immune the curruption that dominates politics, right?
The bottom line is that people who make this a partisan issue are the same ones that don't help destroy the elitist curruption that everyone wants. Til then, we still live in a one-party state.
Now go on with your partisan distractions from reality.
Thank you! I'm glad to see someone else can recognize this.
His "all-in" move this week is the epitome of this characteristic.
I know some people who actually worship the guy and quote him on a daily basis. It is the highlight of my day when I break the myths surrounding that Fossil and they look at each other flabbergasted and unable to defend him. But then they brush that notion and keep on believing.
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"Hell is the Impossibility of Reason"
Republicans McCain, Bush, Bernanke, and Paulson all have the same position on the bailouts as Obama. It was really a no-brainer. Saying Buffet supported Obama so he could get rich off the the bailouts as no bearing on reality.
As for Buffet's gain. The whole economy gained from the bailouts. Of course that's going to include a firm that invests heavily in the United States.
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"The first principle of republicanism is that the lex majoris partis is the fundamental law of every society of individuals of equal rights; to consider the will of the society enounced by the majority of a single vote as sacred as if unanimous is the first of all lessons in importance, yet the last which is thoroughly learnt. This law once disregarded, no other remains but that of force, which ends necessarily in military despotism." --Thomas Jefferson
forward to like the 4:30 mark and watch from there if you wanna skip to the part where he talks about Warren Buffet. I figure this is a little relevant to this thread.
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"...that's the great virtue of the free market, of the private market. It enables people...who hate one another...who don't speak the same language...who would fight one another if they had the chance, to cooperate economically. We were able to deal with China when China was a communist state. Even though we thought that that was a terrible arrangement, we could still cooperate. And that's what markets enable people to do. They bring freedom with them."
- Milton Friedman
Last edited by stealth_swimmer; 11-09-2009 at 02:12 AM.
Warren Buffet, worth 40 billion, received billions more from taxpayer funded bailouts
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