Some great posts this weekend over at "The Big Picture" by Barry Ritholtz; Barry is essentially the "trailblazer" of financial blogging and many a blogger has followed in his footsteps. In my piecethis past week on the Berkshire Hathaway (BRK.a) Burlington Northern (BNI) buyout I didn't have time to get into it but detail oriented readers might of noticed this seemingly throwaway line I tossed in:.... of course Warren wraps himself in the US flag in his public reasoning for the purchase
If there is one man who bests Cramer at self promotion it is Warren Buffet. Now let's be clear he is an investing genius... a marvel. But for anyone who thinks he is any different than "take your lunch money when your eyes are averted" top honchos at the investment banks, you have been duped. He is walking Capitalism 101 - the good, the bad, and the ugly. Carl Icahn with a far better publicity machine; operating in a corporate socialist state.
I didn't post it on the blog but early in the week it came to light that Goldman Sachs (GS) was attempting to buy some tax loss credits from Fannie Mae. These credits are useless to Fannie because Fannie won't be making money anytime this decade... but they would of been a boon to Goldman since they would allow the firm to reduce their tax obligation to the US - need a way to shield those gains from the 98% winning percentage. My first thought was "have these guys no shame?" considering Goldman is only around due to the US taxpayer. Then within the time it takes a Wall Street high frequency trading computer to make 8000 trades (1/4000th of a second) I remember... no Goldman has no shame. Not in its current form anyhow. And as a pure capitalist - it's a brilliant move... why not try? Obviously this would of been a public relations nightmare for the government so other than a story in the Wall Street Journal I thought it was dead in the water. But lo and behold, midweek Warren Buffet (who is now a major stakeholder in Goldman) swoops in and puts his backing behind the Goldman bid. Oh that cute and cuddly "grandpa" guy from Omaha....it must be "ok" then!
Thankfully the Treasury saw this would STILL be a public relations nightmare even with good ole Warren giving his gold plated seal of approval. From there let's look at 2 posts from Ritholtz... gems. Note - if you are not familiar Buffet has been a huge backer of Moody's who is one of the many important pieces of the very broken puzzle that led us into this financial disaster [May 28, 2009: [url=http://www.gurufocus.com/StockBuy.php?GuruName=David+Einhorn]David Einhorn v Warren Buffet on Moody's[/url]] I have been struck that Buffet has not once come out and said (a) what Moody's pulled off was a massive scam and either (b) I know that being in an oligopoly type of business I was benefiting from this scam or (c) I was duped. And let's just be blunt and say the chances of Buffet being duped are between null and void.
#1 Treasury DK's Goldman/Fannie/Berkshire Tax Scam - here
Due to an unexpected outbreak of rationality (and perhaps embarrassment), the Treasury department has rejected requests of Goldman Sachs and Berkshire Hathaway to purchase Tax Credits from Fannie Mae.
This paper transaction would have provided precisely zero value to the taxpayers, and allowed these firms to add to the piles of bailout monies already received by avoiding billions of dollars in taxes otherwise legally owed. It would have been a license to steal.
The sheer arrogance, the colossal gall involved boggles the mind.
And while we expect this sort of behavior from the Vampire Squid — they take pride at Goldman in not just being whores, but in being the highest paid callgirls in town — it is stunning to see such behavior from the usually politically astute Oracle Tentacles of Omaha. For Warren Buffett’s Berkshire Hathaway to team up with Goldman Sachs (which he now owns a healthy chunk of) is a bit of a revelation: We have been spun by his genteel manner, his aw shucks down-home-isms, his off Wall Street, less bloodthirsty approach to investing, into somehow believing he was different.
We have been duped.
We should not have been. Buffett has been the biggest shareholder in Moody’s — a collection of filthy whores and pederasts who were one of the main contributors to the economic collapse — should have raised serious questions as to his judgment in our minds. That he sat by silently as they did their worst, sodomizing the nations credit system for fun and profit was a powerful indictment of Buffett as someone far different than his public persona. In retrospect, as Moody’s was helping to destroy America’s financial system, his merely spouting off aphorisms about about Financial WMDs now looks too cute by half.
Those of you who used to respect Warren Buffett might consider moving him off your increasingly short list of participants in the marketplace who behave ethically. This crude attempt to steal billions — coming on the heels of the bull**** about “Investing in America” by buying Railroads— is a shock to me; perhaps that is a testament to my naivete.
Perhaps the Oracle of Omaha has been infected by a new flu variant, the H1N1 GS mutation. It is usually non fatal to the host, but destroys its reputation . . .
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Back to my comment's here: Potentially even more eye opening is what I call the American system.... "corporate socialism". Remember socialism for the people is an evil thing and turns us into Europe. Socialism for the top flight of elite financiers and corporations? That's fine and dandy! Check out this data...
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#2 Buffet's Bailouts - here
He (Rofle Winkler) is similarly annoyed with St. Warren — but rather than engage in my sophmoric venom spew, he went to the spreadsheet to discover that Buffet owns major stakes in 8 companies that have received more than $100 billion in government bailouts.
Capitalist? Hardly. Sounds more like just another crony to me.
Rolfe also posts this fabulous chart: (click to enlarge)
#3 Rofle Winkler's original post - Buffet's Betrayal here
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
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.
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.
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.
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 naïve 14-year-olds among us thought he was better than this. What would Ben Graham say?
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Back to my comments
Summary: Is Warren B. genius? Absolutely. Does he know how to work the system like no other? Absolutely. Part of American free market capitalism corporate socialism? At the front of the line... with bells on. Soft and cuddly? Not so much.
Trader Mark
[www.fundmymutualfund.com]
Mark's equity focus is identifying secular growth trends, and the companies most likely to benefit from these macro trends. Stocks are identified through fundamental analysis, although basic technical analysis is used in determining entry and exit points.
With a degree in Economics from the University of Michigan, a broader understanding of the economy as a whole, along with interpreting investor psychology is also a major interest for Mark. His career background has focused on financial analysis in corporate America. Visit Mark's website at http://www.fundmymutualfund.com/
With a degree in Economics from the University of Michigan, a broader understanding of the economy as a whole, along with interpreting investor psychology is also a major interest for Mark. His career background has focused on financial analysis in corporate America. Visit Mark's website at http://www.fundmymutualfund.com/
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User Comments:
1. Dealraker says on Nov 08, 2009 at 6:34 PM:
Talk about self-promotion? This guy Rithholtz is THE master!
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2. DaveinHackensack says on Nov 08, 2009 at 7:05 PM:
Trader Mark and Barry Ritholtz just noticed Buffett's big stake in Moody's? Here's what I wrote on GuruFocus in June of 2008 (recapped on my blog back in March):
Before we begin the ritualistic praise of Buffett here, let's remember that a company in which he was the largest shareholder through BRK, Moody's, facilitated these excesses by slapping triple-A ratings on so many of those CDOs. When you own ~19% of a company, you have a lot of access to what's going on there, if you want it. It's too bad that Buffett didn't exercise more oversight of Moody's during the credit boom.
That said, whoever called the folks at Moody's "pederasts and whores" (I just skimmed the long column above, so I'm not sure if it was Trader Mark or Ritholtz) was a little over the top. I'm guessing it was Ritholtz.
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3. Softdude2000 says on Nov 08, 2009 at 8:33 PM:
WEB is not Gandhi but WEB is ethical. He likes to be first & best in the game. He plays by the rules. But it is only fair to expect the rules must be same for all players. He is very competitive and so he will not tie his hands. He asks for the change in rules when he thinks those rules are not fair for the little guy or not good for the society. But he plays with the existing rules and not with the ideal rules because he is living in the existing world. I dont see anything wrong with that.
He always took a high road when dealing with BRK shareholders. US tax payers are not his responsibility. Every corporation looks for ways to pay less taxes by playing by the rules. It is a smart thing to do and nothing unethical.
WEB will not comment on MCO because he cannot comment on something he is actively buying or selling, for business reasons. I am sure he will say it was a mistake not to sell MCO early on. It was just an honest financial mistake and nothing unethical about it. I dont think he encouraged anyone at MCO to cheat or lie. He clearly said he never used ratings and so he might have always thought of them as nonsense.
I totally agree that buying BNI is all out bet on US economy because BNI makes money only if US economy is in great shape. WEB is a showman and will brag about it if it costs him nothing. Again nothing unethical there. He just promotes himself by telling only truth.
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4. Billspetrino says on Nov 08, 2009 at 10:04 PM:
Look i know WEB is a bit of hypocrite and likes to rewrite history
However Buffett is the ONLY man to make over 150 BILLION dollars for he and his investors
That is NOT self promotion that is a FACT
Many investors liek myself that are financially independent OWE our success to studying him
I have NO problem with anyone questioning WEBS hypocracy
But to call him a self promoter is asinine and makes absolutely no sense
If he called himself the greatest he would merely be stating fact
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5. Cowboy77 says on Nov 08, 2009 at 11:43 PM:
"He clearly said he never used ratings and so he might have always thought of them as nonsense."
True, but he knew good and well that many people and organizations did, in fact, use them to justify investments for IRA's, pension funds and all other sorts and manners of investing. To act as if their purpose was not meaningful would be hypocritical. Since both Buffett and, in particular, Munger knew that this and especially the derivatives were potentially so devastating yet refused to use their soap box and capital to get it remedied is, to me, unexplainable. What more important issue in their lifetimes could they have put their weight behind? How many billions (or even trillions) of dollars of government money could have been saved?
As much as I admire Buffett, his situation is beginning to wreak of crony Capitalism. The chart that Ritholz offered about all the companies that Buffett has a major stake in that received bailouts is very interesting.
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6. AlbertaSunwapta says on Nov 09, 2009 at 7:24 AM:
Cowboy77, you really need to reread Buffett's warnings in Fortune magazine a number of years ago. Over the years Buffett has warned about a number of nationally pressing issues. In the WMD piece, he specifically warned of the huge daisy chain counterparty risk. It was very clear and widely disseminated and is still available for anyone to actually read on the internet. There is also a great article floating around on the internet about GeRe's difficulty and in some cases the impossibility in disposing of its derivatives book under Buffett's orders.
As for the housing boom (which by and large was reflected in failures of ratings and conventional mortgage paper), I've heard that the issue of a housing boom was discussed at Buffett's very public annual meetings.
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7. Sivaram says on Nov 09, 2009 at 10:21 AM:
Barry Ritholtz's characterization of Moody's and Goldman Sachs as whores is a bit too harsh in my opinion but it does raise an important issue. I think the critics are mistaken in thinking that Warren Buffett depends on government intervention. If anything, they surely know that Buffett made most of his money in the 60's and 70's with little help from anyone, when few heard of him. The amounts listed in Rolfe Winkler's table also misrepresents the picture somewhat. If you look at Buffett's total portfolio, financials used to be a small component, perhaps less than 30%. So it's misleading to say Buffett depended on that.
Nevertheless, I share some of the concerns raised by the critics. I have raised the same points before, albeit without such harsh language. I remember saying that Warren Buffett's actions in the last few years has tarnished his reputation permanently. He is heading more towards the path of John D Rockefeller rather than the more virtuous path of Andrew Carnegie.
The Moody's stake was regrettable but somewhat understandable. He owned the stake before Moody's got heavily involved in structured finance. He should have still sold it but at least it was a legacy position.
I could also understand him sticking with Wells Fargo. It was a long-time holding and he made a lot of money off it and he wasnt' going to ignore it during hard times.
But I have no idea why Buffett got involved with Goldman Sachs. It was a disaster from day one (not in terms of money but in terms of reputation.) Furthermore, by getting so deeply involved with financials, including stakes in GE (most of GE's growth in the last decade was driven by financial profits), he lost his neutral stance. He basically became a Bill Gross--you know, someone who cannot be taken seriously because all his words are to support his personal and employer positions.
I wouldn't quite agree wtih the critics that Warren Buffett is a crony capitalist. Not yet at least. But he certainly damaged his reputation. It's unfortunate that he ended up profitting off the direct transfer of wealth from citizens. To make matters worse, he took a public stance calling for such a policy.
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8. Cowboy77 says on Nov 09, 2009 at 10:22 AM:
That's true, Alberta, but did he (or they) ever really take his rhetoric to the next level? Sure they mentioned it in annual meetings and his Shareholder letter. I also read it in their interview in Outstanding Investors Digest but didn't he, and only he, possibly have the legitimacy to shout it from the mountaintop until people acted upon it. He went out of his way to write an editorial in October 2008 to tell us to buy stocks etc. when it looked like the financial world was coming to an end. Why did he not use the same power to write a piece saying that we HAVE to fix the derivative problem. To my knowledge, he never did. Or even more importantly, didn't he have the responsibility to sell all those companies to protect his shareholders from the "inevitable" instead of relying upon you and me to save him.
After reading Snowball, you have to admit that the guy is not real big on rocking the boat. He will do it but only to a point. It's not a role he's comfortable in. With that said, why should you and I then bail his companies out with our money? If he knew it was going to be that bad, and he's a genius, then why didn't he bail out of those stocks instead of having us bail him out? Shouldn't they have taken a hit? Isn't that the essence of Capitalism? Or at least what use to be called Capitalism.
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9. Fk says on Nov 09, 2009 at 12:17 PM:
I was surprised at the number of one stars on the article. Ignoring the strong language of the criticism and just heeding the information content, doesn't the author make really compelling points?
Sivaram expressed what I feel pretty well in his comments above. I could understand and give Buffett one Mulligan (allowance for first mistake) with Salomon bros, but to then make essentially the same play with Goldman (5B$ bet yielding at least 3B$ paper profit already), it shows where he stands ethically. In his defense Buffett has a strong record where he does take strong, principled, ethical stands, and he has spoken out about many things such as egregious CEO compensation, keeping Berkshire the textile mill running even when it wasn't profitable because he didn't want to lay off factory workers, etc. But the investment in Goldman, he knows how they make their money, in full detail. He very likely knows more of Goldman's business practice than us. And this fannie mae tax thing, it is disgusting. This knocks down Buffett down another peg in my book not as a cold blooded effective capitalist, but in terms of his ethical standards. Didn't Buffett argue in favor of higher taxes for the ultrarich, or at the very least not having so many exemptions that effectively make them pay less than average joe? Why is BRKB+GS not subject to his same belief in corporate taxpayers paying their fair share?
I can hardly find fault with the cited article whose author cast aspersions on Buffetts name next to vampire squid, whores, pederasty (didn't even know that word, had to look it up. Learn something new every day :) Not that I condone that style of writing, but I understand the sentiment underlying it.
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10. Fk says on Nov 09, 2009 at 12:28 PM:
One of Buffett's quotes I really like is, "Every saint has a past, every sinner has a future." While no one can expect Buffett to be a saint, one would hope and reasonably expect that grievous mistakes should not be repeated.
I admire Bill Gates for his full time work on his foundation right now, but I can not forget the trail of blood that the ruthless unfair (borderline legal if not outright illegal) business practices that allowed Microsoft to become the monopolistic giant it is today. There's a huge graveyard of small, creative firms that got squashed, and NOT fair and square.
I don't know the details of Carnegie and Rockefeller, but just knowing about Gates and Buffett and human nature, I have grave doubts that fortunes that large could be built through 100% ethical means.
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11. Billspetrino says on Nov 09, 2009 at 1:47 PM:
The investments in salomon and GS are just BUSINESS and were great deals
Remember WEB was the top owner of RJR and even bought the bonds in the 80s before he all of sudden decided tobacco was bad but beer was fine
Guy is the greatest investor ever earning his peopel over 150 billion ,NO one can take that away from him
Most of you are too young to remember but when he bought WF in 1989 everyone told him he was FOOLISH and many said that KO was "dead money" when he bought in
WEB is by far the greatest investor ever,learn investing from him but decide what part of his investing you want to follow
Tobacco stocks and Berkshire has made financially independent ,many think my investments are immoral
They have the right to their opinion
Look take singing lessons from Stevie Wonder NOT driving lessons
I can not give you lessons on being tactful but i can make you financially independent
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12. Callaquin says on Nov 09, 2009 at 9:23 PM:
saving money on taxes... yup seems like hes the devil! (are you kidding me?)
Also, hes giving the work of his life (60 billion) to charity. Probably just part of his plan to save money on taxes!
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