Thanks for the article. I have been saying that since september last year when Buffett was making calls to Congress to bail out banks. It is quite pathetic to see Buffett stoop to this level. He looks just like any other operator playing the system, with billions, nothing more.

TRAITOR!!! Benedict Buffett

Howard, thanks for your comment. It gives me an opportunity to expand my argument.

I do give him credit for advocacy. That’s my problem. This just goes to show that even the most pious among us will sacrifice their principles when their own money is at stake.

Yeah, Buffett TALKS a lot about derivatives, about leverage, but what does he DO? He trades derivatives and, if I recall correctly, has said he doesn’t want to see more substantial margin requirements.

And on leverage, Wells Fargo is one of the most highly levered banks there is. If he’s against leverage, he wouldn’t have spoken against stress tests that were designed to reduce it. He offered some smug line about knowing Wells business better than some bank examiner, but that’s patently false. Has he seen Wells’ term sheets circa 2005? Is he familiar with the kind of toxic loans they were underwriting even before they bought option ARM king Wachovia? I doubt it.

And the reason none of his investments went the way of Lehman and Bear has nothing to do with superior fundamentals. Wells, GE, Goldman, Bank of America were all goners if it weren’t for bailouts. People conveniently forget this, now that government rescue facilities have provided the support necessary to boost stocks. But credit markets were closed to them.

And I didn’t even mention the accounting shenanigans these guys are playing. Buffett SAYS a lot about accounting integrity, but his businesses are engaged in some very shady number fudgery.

And what about the General Re case? Everyone forgets that now too.

People give Buffett a free pass because they think, deep down, he really cares about their interests. I think he does too. Just not when they conflict with his own.

What, exactly, is the meaning of “collateralization” of asset values, in terms of creating tradeable liquidity?

Besides Goldman and GE Buffet already held positions in most of those companies. Actually Buffet helped Goldman and I almost wish he hadn’t. They don’t deserve it. Actually none of the banks deserve anything they got the Feds just thought it was necessary and after the Fed missed all the warning signals or didn’t care. Did any of them care as long as the ball was rolling? And taxpayers don’t deserve that they have to pay for it. That’s why it still burns me when the execs get millions in pay and bonuses.

I agree with plenty of this article but not all of it. I agree with your overall point that not enough people talk about some of the toxic loans that Wells Fargo made, or that Goldman got a sweet deal from the bailouts and that Buffett just piggybacked on that. However, two of his huge financial holdings came about after the carnage. His Goldman and G.E. holdings came as a result of his having cash on hand at a good time. Everyone knew they’d get bailed out, Buffett happened to have kept his powder dry and then invested in a high probability event. The back-scratching between i-banks and the Fed churns my stomach as well. Buffett’s right-hand guy Charlie Munger aptly calls it a “daisy-chain of reciprocity.” However, I don’t fault Buffett for investing where he did.
On the derivative issue, it does appear, on the surface very silly on Buffett’s part. These derivatives though were so custom-tailored though that they don’t even resemble the type Buffett has railed against in the past. I’d liken them more to an insurance play than an options play. He received a massive premium up front(”float”), and as I understand they are european style exercise not American. They also have a renegotiation feature that resets(at Buffett’s discretion) the exercise price at more favorable terms in exchange for a shorter maturity. Seen in its totality, it was one of the most shrewd, well thought out deals ever crafted.
I have no dog in this fight. I myself was pretty shocked at the derivative position, and I’m still surprised at his push for the stimulus bill. I’m more with Jim Rogers who says just let the failures fail. Rogers is the only one i’ve heard even make the connection between this time around and the LTCM disaster a while back. Your man on the street-including Wall Street for that matter-probably doesn’t know the full extent of the rot in AIG. The AIG hubris and the mathematics of a small group there are kind of similar to the LTCM deal. Overall, I don’t side with those who think Buffett is a saint among all humanity, but by Wall Street standards I think he and Munger are in the upper echelons ethics-wise.

bingo! maybe munger is the man behind the curtain

Interesting perspective but I notice some important details conveniently left out such as:
- what were the BH holdings in these companies prior to the meltdown?
- what percentage of all BH investible assets does this list equate to? I reviewed the 2008 f/s and see $265+ Billion in assets on the B/S (not all investible), whereas the list in the article gives enormous weight to the $26 billion figure of investments in these companies.
- why is it a bad thing for a large shareholder to want their holdings to do well - the TARP money was going to come either way, why not support?
More information might add some credibility to the critique.

This article just further confirms how good a investor he is, not only able to identify opportunities but also able to munipulate the market. truly a great investor.

bingo! i guess munger is the man behind the curtain

Buffet is an insurance man, an art he learned at the foot of his mentor, AIG’s Greenberg. His simple formula was to invest “free money” (premiums) in yield paying stocks and bonds. He never did any “due diligence”, never understood “business models” and so relied on “brand names” like GE, Coke, GS et al. As for “bailouts”, you are correct. For a few months there he was panicked that he would be wiped out ..but for the grace of Geithner, Paulson, and the ….dumb public..and even dumber Congress…

wow… exposed the true side of Buffet… the side i didn’t know could existed and wish to be not true…
But i’ll rather know the truth than live like a fool, thanks Rolfe

The FDIC guarantee is NOT paid for by taxpayers, it is paid for by a premium from BANKS…do your research Rolfe.

If you look at what happened as a result of Lehman’s collapse, can you imagine if just 1 or 2 or those companies listed had also failed??? The S&P would still be around 7-800…sure Buffett’s interests went up, but so did every other investor, which will lead to a faster recovery.

It seems to me that Berkshire may have gotten too big to fail for more than one reason.

It is also amazing to me that Goldman Sachs - company Mr. Buffett invested a lot of money in - seems to consistently know what is coming next sooner than anybody else. Could there be another explanation for this other than their sheer briliance?

Some great points made in the comments section. Thanks all.

I take issue with those who suggest his investments in Goldman/GE were some sort of altruistic vote of confidence. He said very clearly at the time that it was a bet the companies would get bailed out.

What’s particularly interesting is the timeline. These companies were saved from the grave multiple times. The first time with TARP. And again two months later with FDIC’s TLGP. Folks forget that when TLGP went into effect in late November things had gotten pretty bad. As I note, even Goldman was on the verge of failure. Converting to bank holding company status gave them access to TLGP, which saved them from pretty certain death. The same is true for the banking sector as a whole. Things really were THAT BAD. On that point Buffett is right.

But I think it’s wrong to suggest, therefore, that the bailouts were a net positive for the economy. I think we had a remarkable opportunity to recapitalize the financial sector in the early part of this year, after the first two bailouts proved inadequate. All along it’s been clear the banking system suffers from a solvency problem, not a liquidity problem. Shoveling more money at them solves nothing, just allows them to carry busted loans on their books indefinitely. Is this really what we want? A Japanese solution that protects the richest among us from absorbing losses?

The government SHOULD have wiped out the equity and forced losses on creditors via debt for equity swaps. Yes, it would have been very messy. But the alternative doesn’t really avoid that outcome in my opinion. Instead we just kick the problem upstairs to a bigger balance sheet, Uncle Sam’s. Want to know how ugly it’s going to be when his balance sheet cracks? A lot worse than if we’d dealt decisively with busted banks.

As for my previous comment, in which I referred to accounting fudgery, I didn’t think the point needed elaboration. Why did FASB repeal fair value accounting rules, if not to give banks a break? What about accounting for the massive book of option ARMs on Wells balance sheet? While folks are making minimum payments on those loans, the bank is recognizing billions worth of “deferred interest” as income. All of this income will have to be reversed when option ARMs go toxic on recast. How about all the games banks are playing with commercial loans in order to pretend they’re still “performing” so as to avoid impairments?

I should re-emphasize that I don’t dispute Buffett’s ability to make money. He made a great trade on Goldman and GE, no doubt. Just like Bill Gross made a couple billion on the subordinated debt of Fannie, or friends of mine who made thousands investing in Citi credit because they knew the government wouldn’t let ‘em lose a dime. It seems to be that all of these gains were ill-gotten.

What bothers me is that Buffett talks out of both sides of his mouth. Out of one side he (very correctly) complains that bailouts are corrosive for the financial system, out of the other side he lobbies for them.

The one thing that jumped out at me regarding Buffett’s “genius”….He was somehow smart enough to not invest in GM and lend them a capitalistic hand…why not? Because Uncle Sam wasn’t on board to guarantee his healthy return…what a PIG!! And please keep talking about the truly horrific bottom line for Wells Fargo…I’m sick of hearing how he’d put all his money into it if he could…Talk about obvious manipulation.

Howard, you are very knowledgeable person.I am very impressed that you are very informed.Since, I was kid, my father used to teach me. He used to say my son, there are two sides, listen to both side and scrutinize the matter wisely, you will certainly reach close to the truth. Recent, financial problem is very complicated and dangerous. America heavily depends on foreign debt and confidence is extremely important. I do give thank to Mr.Buffett for his hard work to rebound the American economy.

To “Buffett’s right,” yes the debt guarantee program takes in premiums from banks. But your implication, that somehow that makes the program not a taxpayer subsidy, is just not true. The banks who borrowed from TLGP probably couldn’t get money at any price in private markets when the program was launched. If they could have the spreads would have been huge. The fact that taxpayers have not yet been forced to eat losses on any of this debt is comforting, but doesn’t change the fact that they’re shouldering the risk via an explicit “too-big-to-fail” guarantee.

To Mr. Wiley: actually I did the hedge fund thing. Was an analyst for years on the buy side, at a very respectable shop that followed a Buffett-style strategy focused on quality of earnings and cash flows and returns to capital. Even have my CFA charter. I gave it up because I prefer writing.

Rolfe,

Nice article but I believe you are being a little bit too harsh on Warren here. It is true that a lot of companies he has invested in would have failed without government assistance. But when only mentioning all of these financial companies that would have failed had it not been for the dozens upon dozens of government programs, you fail to see the big picture. If AIG, BOFA, Goldman, and GE all went under then so too would our whole economy. Companies not even related to the financial industry would have collapsed. As you may recall, had it not been for the government’s commercial paper assistance many companies would have failed due to the failure to issue commercial paper. If the government had not intervened it wouldn’t have only been Buffet’s investments that went under. Walmart, GM, Ford, HP, IBM, Boeing, P & G etc etc would have all been in big trouble. As a previous poster said, the financial system should never have been allowed to reach the point it did, but the fact was, it did. He lobbied for the bailouts not for his own profit, but for the benefit of the American economy as a whole. Obviously if the American economy collapsed so too would his investments, but so too would all of yours and everybody elses.

You also mentioned (in your response to another person’s post) that Warren talks about derivatives but yet trades them. The types of derivatives Warren talked down on were highly complex. The types of derivatives he trades in are options, futures, swaps, and other less complex issues.

And finally you spoke about some of his companies having poor operations. If you read his annual letters you would see that he generally tries to stay out of the day to day operations of his companies. He becomes an owner and not a manager. He lets the manager of the company manage the business. So it is not as if Warren LET Wells fargo build up huge leverage.

So before we are all ready to throw Warren under the bus lets take a step back and think about it a little bit more deeply.

Notice how Warren always considered derivatives to be nuclear missiles - yet never did anything about them as a shareholder in insurance companies, GE, Goldman, AmEx.

Notice how Warren always bashed stock options as shareholder theft but sat on the compensation committees of some of the biggest abusers of options - such as Coke.

Notice how Warren is against lower taxes and eliminating the death tax - yet all his insurance companies are funded with tax deferred annuities.

Notice how Mr. Tax me more - has an Off Shore reinsurance company where taxes are lower.

Good article, goes to show that Buffett is not as good a trader/investor as he and the media makes himself out to be.

Rolfe,

Do you really believe the “bailouts” regarding the financial institutions are going to “crack” Uncle Sam’s balance sheet? The ones on your table that you have taken such exception to? In my opinion, unlike some other spending programs, those government interventions have been and will continue to be profitable, though agree there is wood to chop.

This was more than a solvency problem, there was a near indiscriminate crisis of confidence – the credit markets effectively shut down – there was widespread fear. Sure you could say without support many of the solid banks were insolvent, but not because of underlying fundamentals but because of widespread panic and lack of confidence in the system as a whole. Do you really believe that the government’s interventions regarding Goldman simply allowed the institution to carry busted loans? The same institution that paid back the direct investment and is already grossly profitable?

Your writing is far too intelligent for me to think that you actually believe what you are writing. Instead I think you are riding a populist wave of anti capitalism that is helping you build debate around your writing – and increase views of your material. Perhaps your coldhearted capitalist mentor from 14 taught you more than you let on…

Buffett has acknowledged that he will take advantage of the opportunites afforded all of us by government. It would be an injustice to his shareholders if he did not take advantage of legitimate legal opportunities to earn a profit. However, on a personal level he has advocated changing the rules for everyone to create a healthier economy. You must separate Buffett the CEO of Berkshire from the Buffett you watch on CNBC.

As a basketball coach you may feel the three point shot is bad for the game, but you don’t tell your sharpshooter to pass up the wide open three. It’s within the rules of the game, and passing up the opportunity to score may be the difference between winning and losing.

Buffet, Federal Reserve, Goldman Sachs and most of the financial institutions that we know are part of the same network of international bankers. They print money, they give it to themselves to play to legitimize the counterfeiting by Central Banks. The world financial system is mostly a ponzi money laundering scheme.

Buffett’s father was in the US House of Representatives, so he already had a head start building government connections. When I first heard this little tidbit, I suspected he was a sham. This article confirms it.

ROLFE’S the MAN! Good work. Capitalist America, wtf. Rich people and rich people and rich people and rich people get bailout from the cents & pennies & blood of beggar citizens. What a bailout, now we are in for a REAL inflation push RECOVERY!!! People without jobs, paying higher utilities and gasoline? Bullshit! Happily bankers and players with their new-found wealth from the market rally spend!Oh!!!! Federal reserves opinion: When rich people become richer, they can spend, and it create jobs for us to serve them, isn’t it great? E.g. A borrower using our money, and orders us what to do because they are “TOO BIG TO FAIL”, and held US at ransom!!!!!!!!!!!! Rich people become richer, “US”, we become slaves in seek for a decent living. Isn’t this communism? Forgive me, our black brothers, but our president has chosen a team of fraudsters, because the government is a team of fraudsters. Wealth of a nation, is what our forefathers leave for all of us in equal opportunity. Why born a slave? Are we enslaving ourselves? Why are we leading our wealth to bastards on Wall Street to let them spend on $200 pizzas, for us to serve? Why can’t we eat the pizza for them to serve? Is it because they are smarter? Does the policies favor US? This country my friends, have become crooked. I don’t even know if this article will be published, cos the people up “there” are looking after US! God heavens, god save us, America!

wow i see a lot of bitter folks around here
this again prove hes one of the smartest investor

and i can’t believe some of you are calling him a scum or madoff

must i remind you all of you how much charity work he does?
i can’t believe this article made the front page
while it brings very bring insight, the author’s language is disgusting and hateful

People need idol. What I know is till now, nobody did better than him.

After reading of this writers column, pained to recollect of Buffet betrayal to Americans.
No civilized human beings will do such bad acts
Hereafter,Americans will show much maturity for future investments.
This is a drawing lessons to all future investors.

This response it a bit off topic.
I’m new to investing, so feel free to enlighten me.
It seems to me that this general reduction in price value of equities markets (DJIA 9,200) which has brought the PE average down to a more reasonable number, is going to allow for a new speculative market (bubble) to occur. Those who didn’t lose their shirts on the way down can now ride the US bull market all over again, as if it were the start of ‘97–and in so doing make twice as much(?). And now that a lot of de-leveraging has occurred, investors can have more confidence by telling themselves that the price of a share is “fairer” and not too inflated. So, it seems to me that these are great times for investing.
~
My two cents on WB. Buffet, has adopted a guise as an ethical and conservative investor, but really he is just as moral or immoral as the rest of us. This recession has exposed him fairly well. It would be naive to think that he is not a shark. Yes, he probably would not sell the US into a depression but neither would most of us. I wouldn’t invest in BH at this point in time but I still follow his moves.

RW

Banks do not pay for the FDIC premiums, people who use
the bank’s services do. You ever wonder why it cost 3.00
for an AMT withdrawl. So, I guess the one posting
under “Buffet’s Right” should do his/her homework. You
see, the taxpayer ultimately pays for all the mistakes.
The method in which these payments are gained are as
crafty as the very people who run the the Fed, Sec, FDIC,
Treasury, GS, WFC, MS, ect… These people are coming
from a perspective of entitlement that most average
investors cannot grasp. They control the media, gov,
educational institutions, and any other center of
influence where the necessity of positive public opinion
can be created. Their main goal is to preserve their
own wealth at all costs; regardless of method. The
only thing needed is your consent. An by Joe, they got
it. And if they did not, then check to see how your
congressman voted for the bailout, and hold them
accountable.

Essentially, I think that Rolfe’s main argument centers
on the idea that Buffett is no different than the
others, in that, the illusion that these institutions
create to justify their legitimacy have been exposed for
what they are: Greedy Parasites. As Rolfe stated at
the opening about writing to Buffett when he was 14, you
cannot escape the idea that a now older man has become
disappointed by someone he once held in high regard.
It was the illusion that Buffett has projected over the
years that is coming into question, just as those
institutions that we have grown to trust during our life
have disappointed us. In the words of Ma Joad, in “The
Grapes of Wrath”, she said “we got nothing to trust”.
For me, this is the most severe indictment these people
can get. I guess it is up to each of us to do our part
to shout our dissatisfaction.

This piece completely misses the point. His holdings are sufficiently diversified into a multitude of activities. He would still have a great track record if all his bank holdings had gone to zero. His bank holdings are $26bn and his book is four or five times that ammount and his leverage is negligible. He is a genius and any rational investor would seek government support when it is on offer. More to the point his larger holdings, such as Goldman and GE, were purchased post distress not before so has was part of the solution not the problem. He is a hands off manager and lets the magagement get on with it. These holdings are all minority stakes so why would he be privvy to operational detail? Buffett has been warning of financial excess for years so to suggest he is the bad guy is just wrong. The 14 year old still has a powerful role model to look up to.

Don’t worry, Buffet is already bankrupt and disgraced so he will get what’s coming to him. Accounting gimmicks are all that is keeping his charade of a company afloat. The derivitives have destroyed all his wealth and the wealth of his company and soon the market will reveal that Berkshire is swimming naked!:))

Anyone remember the photo of Buffett with Lord Rothschild and the Governator?
Google “Rothschild, Buffett, Schwarzenegger, image” if you’ve never seen it. Tells you all you need to know about money and power.
Maybe he had a good set of working financial principles, but he also rode a generationally-long bull market. Until it stopped. Now he has to get down and dirty in full view. Mind you, I’ve long suspected that there’s a darker history waiting to be written about kindly Uncle Warren.

Is Warren Buffet A Big, Fat Hypocrite?…

People I’ve talked to in the financial industry have been complaining about Warren Buffett’s hypocrisy for some time.

Reuters’ Rolfe Winkler: (emphasis added)
A good chunk of [Warren Buffett's] fortune is dependent on taxpayer largess. Were it…

I am amazed at the excellent analysis. Greed is the mark of the capitalist breed. It seems he fits perfectly in to that definition. His concern for public policy extends only when it adds something to his coffers.

call a spade a spade. well done.

[...] Rolfe Winkler at Reuters has a criticism that rings particularly true. Even as the “Oracle” has bemoaned the [...]

Gosh, and to think Obama and his campaign seeked WB’s advice when the economy tanked last Fall. Didn’t they know he was evil?

This is very sloppy and dishonest.

While playing up Berkshire’s holdings in bailout-recipient companies, nowhere in the entire article do you bother to compare those to, or even mention, Berkshire’s total market capitalization. As of this morning, that stands at $157.5B - of which its holdings in bailed-out companies represent only 16.5%. Obviously, Berkhshire - and Buffet personally - are affected by the fortunes of those companies, but in only minimal degree compared to their other financial interests. Obviously also, a player of Buffet’s stature simply cannot avoid influencing the market in which he himself participates - there’s nothing he can do that does not result in some indirect influence on his own holdings, whether or not he intends it. (If he were to dump these holdings to render himself pure in your eyes, surely that would be worse not only for himself but everyone else as well.)

Likewise, you criticize him both for speaking in favor of the bailout for some companies, and for not speaking out against companies that are at fault in the financial collapse, when he owns stock in both groups.

And your criticism that he invested in companies expected to rebound in the upcoming financial recovery is perverse: isn’t this what we want people to do? Isn’t this exactly what is necessary to make a recovery possible? You may regard the bailouts as an example of moral hazard, but, given that they are occurring, isn’t it both financially prudent and civic-minded to invest in the economic recovery they make possible? Do you really advocate shunning companies whose market value is increasing as a result of the bailouts and other recovery programs - thereby hampering the recovery - just to be innocent of “moral hazard”?

What can Buffet possibly do that would not not come in for your across-the-board and disproportionate criticism? And on what basis do your criticisms rest, given that they seem to consist of advocating (on other people’s parts) the deliberate avoidance of financial profit in a rising market simply because you don’t like the policies that make it rise - hardly a sound business strategy, however resentfully virtuous it makes you feel.

Rolfe,

Looks like you are picking on Buffet just because it will get you more blog traffic. Sensationalist writing always does, as a journalist you’d know that.

If you were in Buffet’s shoes last October, and GS came to you for cash (since you are the only one in town with ready cash), would you have said ‘No thank you. Since you are getting tax-payer dollars and will profit from it, I cannot lend you the money’.
I didn’t think so. Following Buffet’s investment philosophy would tell you that this is exactly the kind of situation for which he keeps his cash.

Let’s all look at the bigger picture. Buffet did not play any part in causing the problem; in fact he warned about ‘Financial Weapons of Mass Destruction’ long before the crisis developed; he put his weight behind the govt actions later because otherwise there would be financial mayhem globally, never mind his own investments. His investments benefitted, but so did the investments of thousands of other investors in large and small companies who would have collapsed had the govt not stepped in.

Some factual errors: 1) The deposit insurance is financed from member-bank premiums, not the taxpayer. Of course there is an implicit govt guarantee, as there is for many firms these days (Citi, GS, Fannie, GM, etc). The debt guarantee is a separate facility, offered by the Fed after this crisis happened, which one can say is straight taxpayer money. A debt guarantee is different from deposit insurance.
2) Buffet has not said he is against all derivatives. He uses options and futures extensively. He is against the kind of opaque, complex derivatives derivatives that even a financial expert could not see through, like CDOs, which he described as WFMD.

Kevin also writes: “You may regard the bailouts as an example of moral hazard, but, given that they are occurring, isn’t it both financially prudent and civic-minded to invest in the economic recovery they make possible?”

How does propping up failed companies help the economy? How does making bad investors whole on the taxpayer dole benefit society? How is calling Goldman a bank and giving it access to the Treasury, Fed and FDIC a noble act?

Were you around when the Fed started the housing bubble? That did not turn out well. Trying to do it again strikes many people as odd.

Dear community, and I say to all of you the very nieve. What were you expecting, do you not know that our most eloquent citizens have done the same. History tells us that this is not new, our country was formed in this mentality, the one were if you are slick, astute, and asimilate a fox, you can ride the tide for many years. The sad part is that we will sweep the information under the rug and continue as if Mr. buffets wisdom was that of a superior being, when in fact the truth says otherwise. There will be more of this kind and life goes on. We dont have the courage to call a crook by his birth name. at least not here in our country

A businessman playing the game doesn’t worry me so much, what get’s up my nose is the politicians who roll over for the few at the cost to the many. The politicians need to remember that they are there to represent the people, not a handful of wealthy businessmen and women. There is of course a balance to be had as the business community is vital to the overall health of the economy, but for my understatement of the day, that balance seems to have been lost.

Buffet has an obligation to do what’s best for his shareholders, even if he benefits in the process.

Well done! Clearly and concisely explained. One more myth/bubble punctured.

Your article is nothing more than guilt by association. Many Americans own stock from companies that received a bailout, but that does not make them responsible. Does your investment portfolio have stock from any of those companies?

You will certainly sell all of the stock that you currently own in each of those companies in order to remain consistent with the “moral high ground” that you claim in this article. How are you any better than Buffett?

Also, it is far easier to pull someone off of a hill than it is to climb to the top yourself. There is a reason that Buffett is worth billions of dollars. He is worth billions of dollars because he is a man of action who is willing to take risks.

“This was more than a solvency problem, there was a near indiscriminate crisis of confidence – the credit markets effectively shut down – there was widespread fear.”

The fear was because of the solvency problem. Oh sure, we could go through life happily thinking those pieces of paper in our wallets mean something, simply because they have fancy ink and a government imprimatur.

Even now we talk about how much we borrowed from China, so we really didn’t just print more.

And yet, some of you seem to have forgotten all the analysis from years past that that is effectively what China does.

Instead of printing more out of fiat, we’re playing the shell game and outsourcing the lie.

I’m a born and bred capitalist.

I’m just not blind, deaf, and dumb.

Nor am I particularly inclined to subsidize anyone. So some of you (supposed capitalists) can whine “The whole world would have imploded. Billions lose their jobs” and I’ll look at you and say very clearly “stay out of my wallet, hippie.”

I especially don’t want to subsidize someone with a better car than I have.

You know what would have really happened if a meltdown had occurred?

A bunch of rich people would have been ruined. The value of their holdings severely diminished. And those of us who were a little more careful about husbanding our resources would have stepped in and gladly paid .01 cents on the dollar.

None of the factories would have spontaneously combusted. None of the tangible assets would have disappeared into chasms that opened up in the ground. The jobs lost? They’ve already been lost.

Great article and informative. I forwarded this to many friends — all of whom were Buffett fanatics.

It’s hard to find any significant businessman with interests in banking who hasn’t been affected by the Government’s programs. There are many reasons to criticize Buffett — this isn’t one of mine.

Far better to criticize the government, who got scared into a big giveaway to the financial sector. If the government sets bad rules, and offers out money with few strings attached — who is to blame, the one taking the money or the government?

Personally, I think more firms would have survived the crisis than many suppose if the government had done nothing, including Goldman Sachs. Instead, they get cheap financing, paying nominal sums to be able to borrow at preferential rates.

The government is the problem, not Goldman Sachs or Buffett.

Buffett is a lobbyist now? That’s a stretch. The author of this article is ignorant to Buffett’s investing and the way Buffett thinks. To lobby one must register as such person. Are you saying that Buffett is registered lobbyist? Now Buffett is influential and he used to comment on what he thought would be “right thing” after the collapse of 2008.
Author makes us feel that Buffett was invested in all these companies before the collpase undermining his skill. The huge bets he placed in Goldman Sachs and GE where in concert with the bailout, becasue buffet knew these companies would survive. So he did right by shareholders which is ultimately the people he works for. He got a great deal on these investments I might add. If you read the letters to the shareholders you would know that Buffett is not a big fan of banks as business models in general, because they require so much leverage. Couple of missteps and your equity is wiped out.
Author of this article is naive to think that all that banks need is to have enough capital. That is a smaller problem in comparison to dumb bets that all the banks made.
My friend sent me this article. And I apreciate the disconfirming evidence. But his is just bad quality.
People who criticeze Buffett for derivatives, just have no clue what it means in terms of cost of capital.
Let me remind you that many where laughing at Buffett when he avoided the whole internet bubble. Guess who was laughing in 2001 and all years after that.

GREAT ARTICLE. I APPLAUD YOUR COURAGE IN FINDING FAULT WITH THE GREAT ORACLE OF OMAHA. ALAS, BUFFET IS NEITHER GREAT NOR AN ORACLE, BUT A DOUBLE-SPEAKING OLD WEASEL, WHO PROFITS BY USING HIS NAME AND POSITION AND BY PLAYING UNFAIRLY.

GREAT ARTICLE. I APPLAUD YOUR COURAGE IN FINDING FAULT WITH THE GREAT ORACLE OF OMAHA. ALAS, BUFFET IS NEITHER GREAT NOR AN ORACLE, BUT A DOUBLE-SPEAKING WEASEL, WHO PROFITS BY USING HIS NAME AND POSITION AND BY PLAYING UNFAIRLY.

after all propping up the economy may work in a short run ,but in long run complete reboot will get red of the ill areas that will only be a burden for taxpayers anyway,Buffet’s dirty goal may not be money but influence and power,without a powerfull army of influenced people a hole fortune will be gone in no time.

Very good article. Glad to see my same feelings put to print.

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buying into this love affair of business and government elites who have twisted and turned monetary policy towards their own benefit..aka greed…serves the average American little except higher prices and taxes..it is sad to think that the generation before never suffered this appalling
treatment, but now the baby boomers and all generations to come after, will…who will believe in the American dream then?

Rolfe,

I often find it intriguing why people spend so much time critiquing great individuals instead of study them. Your case is especially intriguing.

I applaud you for getting into investing and discovering Warren Buffett at such a young age. I only wish I discovered him as early as you did. However, it saddens me to see you write such an article.

First, to say a good chunk of his fortune is dependent on taxpayer largess is simply false. He invested cash into the companies you mention so had he not invested in those companies, he would still have his “fortune”. The results of his investments are uncertain as he has not exited from them and do not plan to exit from them so I’m guessing you’re simply stating your belief that the investments he made amidst the financial fallout were very wise ones that will generate enough profits for him in the future to become a large part of his already staggering fortune.

Second, please be clear that he invested in these companies before TARP. He simply made a bet that these companies will be profitable in the future and will pay him his 10% dividends. If the government had not bailed these large institutions out, you would probably be out of a job. And keep in mind that the shareholders did get wiped out in a majority of the cases. Therefore, it is only fair to say that he made a bet and it paid off. (I figure his thinking was the government will do something and thus his move will be a profitable catalyst to instilling confidence. And if the government does nothing, then there will be much bigger things to worry about).

Third, I wonder if you are also the type of person to complain about the government’s misspending of our tax dollars. If you are, and you also seem very righteous in promoting what’s good for society and humanity, then I don’t see what your complaint is because Buffett is donating most of his wealth to society so be patient, the money that he’s making from these “detestable” institutions will come back to causes you perhaps would champion. Heck, wouldn’t you rather he get paid and donate the proceeds to charity than goldman having $1B more each year to dole out to the people you so dispise. Also, consider that he states repeatedly that the Fed, through massive money-printing, is taking the necessary actions but will have consequences in the future. What the Fed is doing is basically a huge ponzi scheme. We are the shareholders of America so if you want to talk about share dilution, the fed is the main diluter. Warren Buffett is the largest private shareholder in America so he would get hurt the most on an absolute scale but he still proposes the necessary actions. I’ve yet to hear of him lobbying for the gold-standard to avoid his share-dilution.

Lastly, derivatives aren’t all bad. He and Munger condemn derivatives because of their potentially crippling effects due to the leverage and counterparty risks often involved. In Buffett’s case, there is no counterparty risk and there is no leverage. There is only a chance for him to use the float to earn a return or for all four indices to plunge to in 15 years and Buffett paying the money.

As an investor, I am proud that the business world still has people like Warren Buffett and Charlie Munger. They will do more good to society than any businessman or saint has ever done. Therefore, I can only say take my tax dollars Mr. Buffett and makes lots of money with it and donate it in a way that the government, the banks, and the saints can’t.

p.s. I don’t see how Buffett has betrayed anyone and certainly how he has betrayed you. He has never promised any of us anything but that he will grade himself with his internal scorecard. If you ask him whether you, and fellow 14-year-olds should look up to him as the moral guidance, he would perhaps humbly respond that you’d be better off looking in a monastery. And if it is the annual meeting he invited you to when you were 14 that you took as his loyalty to you, then I’m sure he will still be happy to have you. perhaps the title should be “Rolfe’s betrayal”.

Rolfe,

It’s a pity you, like so many of your readers, stopped learning about Finance at the age of 14. What makes Buffett so special is his ability to see things in simple terms, things which the rest of us in the industry spend days on–drawing conclusions from complex mathematical models. I’m comfortable with my models, but then again, nobody knows me from the next schmuck. And that anonymity has meant that most of us don’t care about what happens outside of the 1’s and 0’s on the computer screens or in our bank balances. Think what you like, but let me say this: without getting into specifics, trust me when I tell you that Buffett is one of the few guys in this industry who actually cares about this country, for what he’s done over the last 7-8 months, he might be the only true patriot left.

The way in which the article is written implies that Buffett was the single and most influential factor in the government’s decision to bailout the banks. Albeit, that he may have had some influence, but by that time I believe the Feds, whether they made it public or not, had decided a bailout was neccessary. Even if the Feds haven’t made the decision yet, others would have lobbied the government for a bailout. Thus, whether or not Buffett voiced his opinion he would have been bailed out.

Furthermore, the statistics used in the article are misleading. The focus should be on the investments that Buffett made around the time that the financial crisis unfolded (i.e. focus on GS and GE) which make up less than half of his bank holdings. And even then, he invested in preferred shares (albeit there are warrants to purchase common shares attached).

[...] Rolfe Winkler Blog Archive Buffett’s Betrayal | Blogs | [...]

To comment on the general premise of the article:

Firstly, all Buffet is doing is being an activist investor. His investment thesis could have been fully aware of the potential worst case scenario for the companies he was invested in as well as he could have speculated that in a time of crisis and with lobying from the right people there would be a bailout. Managing money is like golf, there’s no room on the scorecard for pictures.A hole in one is still marked down a one even if it hits off a tree…

Additionally, in my opinion you cannot talk about the hypothetical of banks going insolvent when evaluating a manager because without the bailouts we could be in a very different world period. If the banking system would have collapsed the majority of holding companies / funds would have gone down simply with their clearing firms. Without the bailouts Buffet would have gotten hurt really badly sure but the only way he could have avoided losses had the bailout not occured would have been to sell everything before the break… That would simply not be possible for the largest line in the world BRK.

A bigger chirp to Buffet is that he is underperforming the S&P. Anyways, good talk.

What you completely ignore is that because of the size of his portfolio, it’s much harder to Mr. Buffett to make the same return on his investment these days. He could beat anyone in the game at investor smaller sums in smaller companies, where growth in the company and thus the stock price is much easier to realize. For him to keep up the same growth levels, he has to invest much larger sums of money, and usually in much more establish companies.

You’re entire argument is based on the fact that he’s invested a lot in companies that received bailout money? Well, put it into proportion. There are tens of thousands of investors out there who own an equal proporation of these stocks compared to their asset base, it’s just that because Buffett is bigger, he becomes a target.

It’s a lot easier to be a critic.

Buffett has had a positive influence on my investment process, and I can’t blame him for trying to protect his capital. In serving his own interests, Buffett served the interests of all of us. If these companies, which Buffett happens to own, were to fail, the entire financial system would have failed. This is a well written article that highlights Buffett’s self interests, but Buffett did not pursue his self interests at the expense of the American taxpayer. We all would be much worse off if these companies were not bailed out.

[...] has more than $26 billion invested in eight financial companies that have received bailout money, writes Rolfe Winkler. “The TARP at one point had nearly $100 billion invested in these companies and, according to [...]

Good article. I’ve got nothing against Warren Buffet, and I do admire the man for his successes. He does, however, have enough money and doesn’t need help paying a mortgage, getting enough food to eat, paying for medical problems. So I do wonder why we are shielding him from taking the hit that the market would inflict on him and his businesses. Those resources spent keeping him whole could be put to much better use.

This old bastard crook has been manipulating the congress for bailout. This SOB is one of the biggest crooks and uses every opportunity to get publicity.

This wonderful human being is being vilified just like Jimmy Carter was,who also was one of the most honest, decent and truly one of the most benevolent human beings on earth. What’s wrong with Mr. Buffet trying to protect my investment in Berkshire (almost 1 share of class B)!!!
Mr. Buffet is a supreme capitalist —- not a priest!

According to my quick calculations: Berkshire Hathaway’s market cap today is @ 170 Billion and the 7 billion in equity that Warren stood to lose if all his financial company stock holdings went to zero amounts to @ 4% of Berksire’s market cap.

Something inclines me to believe that if Goldman, American Express, General Electric, US Bankcorp, Wells Fargo, Bank of American and Sun Trust Bank (among many others) were simply allowed to fail (moral hazard aside) it is very likely that ever poster here and virtually everyone else in this country stood to lose a great deal more than Warren.

As for Moody’s it was a great ride while it lasted, however, with the perverse incentives in the bond-rating set-up it was inevitable that chickens would come home to roost one day.

IMHO

Wow, I never realized how many people work for Berkshire Hathaway until I read this. I thought you were being too generous to Buffett. He is a colossal hypocrite who has always made his money through corrupt government programs. You forgot to mention his large investment in Fannie Mae over the years.
Behind every great fortune is a great crime.

What was the point of this piece? That Buffett betrayed… the taxpayers? Did I just wake up in a world where Warren Buffett is now a politician?

He is not a saint. He is a capitalist–one of the best. His day job and duty is to his shareholders, and on that measure he is doing just fine, thank you. This shareholder does not feel betrayed. And to say Buffett exploited the taxpayers is laughable. That’s like saying you exploit child labor because you wear Nikes.

The facts in this piece are fine. The way they are spun to generate sensationalism is positively Murdoch-ian. I expect better from Reuters.

If smarmy windbags talking out of both sides of their necks when it comes to bailouts in untold amounts with no strings attached to mismanaged banks and desolate ruins of once-proud arbitraged-to-death corporations, nothing in return for the working stiffs who fund them, no punishment for those who misappropriate them, and above all, no sign of humility or even gratitude on the part of those receiving them… if this is what bothers a 14-year-old, then there are a lot of 14-year-old Children of the Corn out there. And they’re coming to town.

No amount of happy-face greenwashing a la Gates Foundation is going to save the guilty parties. Warren and all, they’re doomed, period.

This is nuts. Buffet made his fortune on Gilette and Coke and all sorts of investments long before the current crisis arose. When it did arise, was he really obliged to let Berkshire fold “on principle”? He legally protected the interests of his shareholders, the people whose money he manages. So whom has he betrayed? You? What does he owe you? Yikes.

[...] More here. [...]

if all the company in your chart collapsed do you know how big a disaster that would be? not just buffett will lose, everyone will. buffett is good in the sense that he knows they are not gonna fail (thanks to federal aid). if you had known they won’t fail would you buy the stocks since the prices has gone so low?

I am glad that my initial sentiments and reactions toward Mr Buffets actions last year are finally being discoursed by others. To be fair, we do not know exactly when Berkshire took stock positions in these other banks. When the Goldman warrants deal was announced, my initial reaction was that of a smart deal for Buffet. But, when he publicly began supporting the government bailouts of these various firms, at terms that were far less favorable to the taxpayers than those he negotiated for his own company I lost any and all respect for a man I always admired.

This is the very best piece on Buffett I have ever read. What is going on does not surprise me at all, excellent work.

Good article. I divested myself of BRK after Buffet stated that the bailout and stimulus was “the right thing to do”. With BRK being so loaded in financials it was obvious what he meant.

I wish the US taxpayer would stop complaining. Any time they want to compete in the real world without all there subsidies and barriers, good luck. Just think about it, how does anyone working in the US car industry think they compete with any asia carmaker. They don’t they are being supported just like Mr Buffet. So just be quite and thank your government for printing phoney money so you can continue to believe the US are the masters of the universe.

Say it aint so Warren. Thx for the news. Not something I read in the Times. Is this info widely known?

[...] commend to you an insightful post, “Buffett’s Betrayal,” by Rolfe Winkler of Reuters, who at age 14 joined the Warren Buffett fan club. It describes [...]

[...] Buffett’s Betrayal Reuters (04 Aug 09) [...]

wow, great article and great response to howard comment. I feel duped, Buffet is sort of a hero to me, someone from near the ground up make it to the top purely on investing. this hurts but better to find out the truth. I wish more of this exposure was public knowledge. Not just about Buffett, but about all, including congressmen and their investments.

It is easier for a camel to pass through the eye of a needle than a rich man to enter the kingdom of Heaven.

If you truly followed Warren’s career as an investor, as you claim, and what he generously and openly shared with us over the years you would have been more kind in your article. Our Government would have spent the bail-out money regardless of who benefited from it. Let’s not blame our own shortcoming, as active citizens, of letting our irresponsible Government, that has been on spending spree over the last thirty years, on an individual whose records speak for themselves.

ET TU, BRUTE?

Over time Warren Buffett has lobbied hard and long for his Berkshire Group. Would you expect any less? He does not make the rules but understands how to use them to his advantage. He will give most of his money away upon his passing as will Bill Gates, and thank goodness he had the veracity to work behind the scenes of this crisis, one which by the way he did not cause.

I too have received correspondence from the Oracle of Omaha on a real estate deal I proposed. He was polite in his declining, and I could tell he had bigger fish to fry. Who would you rather extol as an example. Some Gordon Gecko type hedge fund manager that comes out of left field to fleece his investors with untold immediate and outrageous fees and bonuses, or a mid-western hard working icon that has been at since 12 years old creating real wealth for his investors; ALL OF WHOM WISH THERE WERE MORE LIKE HIM. To me, and I suspect 99% of us that is a no brain-er. I do not own any Berkshire stock but wish I did. SG.

Its About time someone called this fake. (Buffett).He had acess to the top information, and was down 30 to 40% even with taking taxpayer money. I had no inside information,or super computers and was up 10% for the year.The robber barons of the 20s, built libraries, and parks, to give Americans a boost up, This guy and gates, take taxpayer, and American money, and give it to creepy causes, to boost everyone , but Americans.They created American competitors, with American money, made by laying off American workers. Buffett, didnt even have the decency, to leave his Ill gotten gains to his own family.The American military, is risking their life, to protect world trade, at American taxpayer expense, while these guys loot America and give it to anyone except america.The world is getting a free ride, at taxpayer expense Where are the health clubs for American injured, military. Where are the new American Libraries, Where are th computer libraries, for out children? They are given to everyone but Americans.

All is well; Goldman has declared the beginning of the next Bull Market. Goldman has given a whole new meaning to “Bull” Market.

Well articulated–would LOVE to see Buffett’s response!

[...] blog post was thought-provoking for me (link). If you look at it on Rolfe Winkler’s side (and I believe he makes a compelling [...]

This article is a crock of cr^%. Buffet helped the banks far more than he should have. He probably should have stayed away when they were in financial trouble, but thought he had a responsibility to our country.

The BANKS and the mortgage BROKERS are the crooks - banks backing bad loans made on no documentation in scary circumstances.

If the government would not have intervened, our financial system would have melted down and ALL OF US would be out, not just Buffett.

Not only did he protect HIS holdings, but he protected MINE too, so thanks Warren.

Welcome to CAPITALISM!! New age USA style. Lets face it, its going to be a cold day in hell when the Buffetts of the world will not do what needs to get done in order to save their Empire. hell I would have done the same thing because I would have been legally allowed to do it. One would like to think, that when the Oracle passes on he will leave a lasting legacy to the people of the USA, where his funds profits are put back into the Community, Lock, Stock and Barrel!