Berkshire Takes Accounting Rules Into Its Own Hands, Tells SEC To Stuff It
A new just released stunner discloses the unprecedented level of hypocrisy attained by Warren Buffett, for whom apparently accounting rules are swell, except when he actually needs to follow them. Reuters has just announced that the U.S. Securities and Exchange Commission questioned Warren Buffett's Berkshire Hathaway in the second quarter on why it was not writing down large losses on shares in Kraft and US Bancorp, but the company insisted its accounting was right. The issue arises out of $1.86 billion in "unrealized" losses in Kraft and USB, which had a duration of more than 12 months, and should have thus been written down, as is required of most non-monopolistic companies which believe the world revolves around them. Berkshire's response: "We believe it is reasonably possible that the
market prices of Kraft Foods and U.S. Bancorp will recover to our cost
within the next one to two years assuming that there are no material
adverse events affecting these companies or the industries in which they
operate." In other words, let them eat cake - we will determine our own impairments, thank you very much, aka, SEC guidelines are for chumps, and Warren makes up his own accounting rules on the fly. This is especially true when it is a question of the ponzi reverting to its mean, which it most certainly will courtesy of the Oracle's millions in embedded political financial lobby interests, and the fact that just like with the rating agencies, all of Berkshire's computers ref out if one assumes a decline in prices. Perhaps Mr. Buffett will be so kind to tell a fawning and mouth wide agape Becky Quick next time they are deep in the bowels of a rapidly amortizing NetJets asset, just how often he thinks that mark-to-market, revenue recongition, or the whole credit/debit thing, is also a completely irrelevant piece of accounting folklore, to be used when useful, and discarded when, well, not.
More from Reuters:
Berkshire (BRKa.N)(BRKb.N) on Monday publicly filed copies of a letter it sent to the SEC in May, answering questions from the regulator about its accounting treatment for those and other stock investments.
In an April letter, the SEC asked Berkshire why it was not recording write-downs on shares with $1.86 billion in unrealized losses, all of which had been in that position for at least a year.
Given the duration of those losses, the SEC said they appeared to be more than temporary and as such should have been written down.
In a detailed response, Berkshire Chief Financial Officer Marc Hamburg said most of the losses with more than 12 months' duration as of December 31 were concentrated in Kraft and U.S. Bancorp, shares it had acquired in 2006 and 2007.
Hamburg said that as of December 31, Berkshire determined both companies had enough earnings potential that their share prices would eventually exceed the original cost of the stock. It also has the "ability and intent" to hold the shares until they recovered, he said.
The only thing that may surprise one anymore about Berkshire, is that the company has decided never to pay taxes again, until such time as it determines it can afford to give some money back to the taxpayers which saved tens of billions worth of BRK investments from 2008 and before.