Warren Buffett’s share of the federal bailout
Rolfe Winkler so admired Warren Buffett’s old-fashioned market fundamentalism that, when he was a lad of fourteen, he wrote his idol a fan letter.
Winkler is not so admiring of the whited sepulchre of Omaha today.
Were it not for government bailouts, for which Buffett lobbied hard, many of his companyâ€™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. …
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 â€œconfidence in Congress to do the right thingâ€ â€” 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 Buffettâ€™s letter to Berkshire shareholders this year:
â€œFunders that have access to any sort of government guarantee â€” 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 governmentâ€™s umbrella â€” have money costs that are minimal,â€ he wrote.
â€œConversely, highly-rated companies, such as Berkshire, are experiencing borrowing costs that â€¦ 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.â€
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 â€œatrocious sales practicesâ€ in the financial industry, holding up Berkshire subsidiary Clayton Homes as a model of lending rectitude.
Conveniently, he neglects to mention Wells Fargoâ€™s toxic book of home equity loans, American Expressâ€™ exploding charge-offs, GE Capitalâ€™s awful balance sheet, Bank of Americaâ€™s disastrous acquisitions of Countrywide and Merrill Lynch, and Goldman Sachsâ€™ reckless trading practices.
And what of Moodyâ€™s, the credit-rating agency that enabled lending excesses Buffett criticizes, and in which heâ€™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 worldâ€™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 didnâ€™t respond to my email seeking a comment.
What saddens me is that Buffett is uniquely positioned to lobby for better public policy, but heâ€™s chosen to spend his considerable political capital protecting his own holdings. …
To me this feels like a betrayal. Thereâ€™s a reason heâ€™s Warren Buffett and not, say, Carl Icahn.
As Roger Lowenstein wrote in his 1995 biography of Buffett, â€œWall Streetâ€™s modern financiers got rich by exploiting their control of the publicâ€™s money â€¦ Buffett shunned this game â€¦ In effect, he rediscovered the art of pure capitalism â€” a cold-blooded sport, but a fair one.â€
But thereâ€™s nothing fair about Buffett getting a bailout, about exploiting the taxpaying public for his own gain. The naÃ¯ve 14-year-olds among us thought he was better than this.
What would Ben Graham say?