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Guest Post: Warren Buffett, Stop Using My Credit Card!
Submitted by Janet Tavakoli of Tavakoli Structured Finance
Warren Buffett, Stop Using My Credit Card!
By Janet Tavakoli
I like Warren Buffett. I even wrote a book about the financial crisis contrasting his principles of prudent finance with recent excessive leverage, bad lending, and malfeasance (Dear Mr. Buffett). Buffett is not a regulator, an altruist, a consumer advocate, or an elected official. As CEO and largest shareholder of Berkshire Hathaway, his goal is to maximize shareholder value.
U.S. capitalism has morphed into a financial oligarchy. If Buffett’s choice is between getting along in the financial community or the public interest, public interest loses. But he didn’t cause our financial crisis, and he spoke out in advance about excessive leverage and bad lending. The financial markets are now wildly distorted. Others have funding advantages Buffett can only dream about, so he exploits an advantage when it becomes available.
I have been a trenchant critic of rampant financial malfeasance, and Buffett has only wished me well and told me to “keep writing.” For my part, I try to keep in mind that we view the world through different lenses.
On October 25, 2009, when BBC’s Evan Davis interviewed him, Buffett surprised me : Click here to view the eight minute video. It started out so well, but after six minutes the interview went sideways. [Not shown in this clip Buffett said his $5 billion investment in Goldman Sachs’ preferred stock (plus free warrants) last year was, in part, a bet on a US government bailout.1 He thought the U.S. taxpayer got a good deal, but we got a worse deal than Buffett negotiated, and as I explain here, I feel taxpayers got chump change.]
@ 3:14 min: Buffett explains that if there were only 50 people on a fertile island, we wouldn’t take the five smartest people out of the 50 and give them the most money and tax breaks for trading rice futures and speculating: “Hell no! We’d get everybody producing rice. The idea that people that move money around are some favored class—and they are in this country, even in terms of taxes—strikes me as getting pretty far away from where we should be.”
@ 6:00 minutes: Buffett claims shareholder losses obviated moral hazard. Not true. In control frauds (first identified by William K. Black), financial institutions are destroyed, and shareholders lose. Only the agents: CEOs, CFOs, and highly paid employees are enriched. Unlike Buffett, these agents are “stewards,” not major owners. Moral hazard remains an intractable problem.
@ 6:25 minutes: Buffett claims taxpayers have not bailed out anybody, because tax rates have not gone up (yet), and “tax receipts are way down this year.” Chinese and Japanese buying U.S. government bonds have bailed out financial institutions. Not true unless we default or destructively print inflationary dollars. Tax receipts are down because of unemployment. U.S. taxpayer credit bailed out financial institutions, and we will have to pay back our debts.
Imagine this scenario: Warren grabs my credit card and charges twelve suits. When I object that I don’t want to bail out his wardrobe, he chuckles and says, don’t worry, you haven’t paid anything yet. The bank that issued the credit card bailed out my wardrobe, and it hasn’t even had time to charge you interest on my purchase.
When I protest that I’ll have to eventually pay off both the balance and accrued interest, he tries flattery. You are so productive that by the time you have to pay this off, you’ll have so much more wealth that you won’t even notice these charges. You’ve always been good for it before, and you’ll figure out how to pay!
Don’t fall for it.
Government debt, like your credit card, is a type of money. It must be paid off with our future taxes generated from our production (unless you wish to destroy the economy by printing excess money). The fruits of your labors should be used in the way you see fit.
We must stop subsidizing speculators with cheap funding and tax breaks. We have to hold people accountable for malfeasance, break up large financial institutions, and allow them to fail instead of bailing them out. (Click here for my suggestions.) As for high pay and tax breaks for speculators, even Warren Buffett says: “Hell no!” But he won’t help us make changes. U.S. taxpayers will have to figure it out, or we will pay.
1 Buffett bought $5 billion in Goldman Sachs’s preferred stock paying a 10% annual dividend with warrants to buy $5 billion in common stock at a price of $115 anytime before October 1, 2013.
Recapped in BBC’s mp3 podcast of Oct 26, 2009 @7:15 minutes in (Click here to listen):
Evan Davis: When you invested in Goldman Sachs (GS), what gave you the confidence to do that?
Warren Buffett: It was a very scary time…. I did not feel that we would be dumb enough really in a really basically prosperous country to let the misfunction (sic) of the financial engine bring down the country. But there was a time there where you wondered about that.
Evan Davis: I want to be clear here. When you made that investment, was it essentially a bet on GS performance or the performance of the authorities?
Warren Buffett: Both. Both. I mean you had to count…on Washington in effect not becoming so dysfunctional or blind to the problem or whatever it might be that it would let the whole country topple. But you also had to count on the fact that GS itself was basically a sound institution. [Thanks to government bailouts, cheap public funding, debt guarantees, new bank holding status, and more.]
* * *
Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago?based consulting firm to financial institutions and institutional investors. She is the author of a book on the cause global financial meltdown: Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street (Wiley, 2009), Structured Finance & Collateralized Debt Obligations (Wiley 2003, 2008), and Credit Derivatives & Synthetic Structures (Wiley 1999 and 2001).
Disclosure: Tavakoli is a Berkshire Hathaway shareholder.
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Janet likes WB? Well, I don't like WB. Frankly, I've dismissed half of what Janet Tavakoli has written because her book title suggests her adoration for WB. He has used the estate tax to scoop up family businesses on the cheap (e.g. Buffalo News) and he makes money selling expensive business continuity insurance to those same family businesses. He's been an investor with Moody's, a rating service whose fraud we are now all paying. While on the board of Coca-Cola, he turned a deaf ear to a whistleblower whose complaints led to the company paying a hefty fine to the SEC. What about the fraud the SEC discovered at the Berkshire Hathaway General Re division? I'll bet Becky Quick won't ask about that (wink). Good Ole Uncle Warren. Everybody loves good ole uncle so-and-so until they find out that he's been molesting little Johnny for the last 15 years. It's the American way of life.
"I did not feel that we would have been dumb enough, really... to let the misfunction of the financial engine bring down the country... you had to count on Washington, not becoming so disfunctional... that they would let the whole country topple."
The "whole country" wouldn't have toppled, Warren.
You might have toppled, Goldman Sachs might have toppled. I would not have. Most middle class Americans would not have. By taking the actions that you promoted, however, (ie. the forced expropriation of the fruits of OUR LABOR to bail out you and your friends) we might, and you probably won't.
Warren's definition of "whole country" is "FIRE industry".
...which is the latent hypocrisy in his whole "aw shucks" "I'm a regular guy" "speculators are bad... mmmnn kay?" public persona.
hey warren, and you are not a speculator? even YOU Mr. Buffett are a speculator. you are just afraid we are going to take all your money away from you. we are gonna make you leverage yourself and hedge yourself giving you an opportunity to improve your risk management process.
"One way" WB - how those S&Ps? enough said on speculation.
So didn't he just admit to insider trading? Buffet was being consulted by Paulson and others in the Fed and Treaury and was intimately involved in their potential policy actions. He would have not only known IF a bailout was coming but the magnitude of the bailout. This is blatant insider trading.
Any way to file a class action lawsuit against him and Berkshire?
A nice FOIA request wrt to the conversations he was involved with followed by a nice high profile lawsuit.
I've felt this way about Warren Buffett for a while. It's because of his grandpa demeanor and plain spoken language that everyone thinks he's so innocent. I wish the media would stop fawning over every word that comes out of his mouth. He's part of the Gov't/Wall Street cabal that is bad for the middle class.
'Come on and ease on down, ease on down the roadDon't you carry nothing that might be a load
Cause there may be times
When you think you lost your mind'
-The Wiz
Advertising is the very essence of democracy.
-Anton Checkov
As a pup, I was the manager of a 'pre-internet' weekly. We were free to the public and survived on advertising revenue. Had to hire dispatchers in order to run out and pick up checks in order for ad copy to make the deadline.
One of our dispatchers was from the Soviet Union. He was formerly the manager of a petrochemical factory and part of the nomenklatura. He only took the dispatch job because he 'needed time' to improve his English.
One evening, over a vodka hydration session, he regaled me with stories of how he and his buddies would party in undisclosed locations with Western goods - fancy TVs, drinks, food - espousing the commie ethic while reveling in the 'vida loca'.
Can hear his accented voice now as he offered ' You see in Soviet Union we were capitalists... we were always capitalists...we were just bad capitalists'.
Will our children someday listen to an enlightened past Master of the Universe intone in poor Mandarin: 'You see in America we were socialists...we were always socialists ... we were just bad socialists.'?
Today's FT : A survey by the BBC World Service found that 'in the US, one of four respondents thought that capitalism was working well. Pakistan was the only other country to get more than 20 percent on that score.'
Bismallah!
As oft-stated on this blog , much like the aristocracy when the barbarians are at the gates… you save the silver (banks) first. They will destroy the village (dollar and markets) in order to save it.
Does anyone really doubt now that the response to the banksters being too bankrupt to go broke was 'cash for bunkers'? The money ain't for nothing and the chits are free.
Hunker down and let the steep curve avalanche solvency.
In 1907 a fellow by the name of Comte de Mandat-Grancey gave a speech at the Catholic Students' Club in Paris. As reported by the New York Times:'The millionaires who possess one-quarter of the national wealth of the United States constitute a real aristocracy which he defined as the class which establishes superiority for itself by its capacity for producing riches. He argued that the origin of the European aristocracy was due to a display of identically the same qualities. The solution of the present social problem in the United States, he thought, would be either Socialism or aristocratic domination by the very wealthy class of an even more definite character than that at present existing - preferably the latter.'
Six years later on a dark and lonely night at Jekyll Island he got his wish.
Comte de Mandat-Grancey argued against the Collectivist control of the sources of wealth production, over the last century his granted wish has morphed into his deepest fear.
Will readily admit that there was once a time that I thought Ron Paul was a nutjob. That time has long passed. The distinguished gentleman from Texas intends to vote against the reform package that will include his amendment to audit the Fed.
'That doesn't make any sense' whined a canucklehead on Hee-Haw.
Of course it does, I muttered as the mute was reapplied, it's called integrity.
What is this 'regulatory reform package' but a further move towards codifying a collectivist control of the sources of wealth production? Government backed debt for government anointed 'systemically important' firms? The bold pap of a road map for stealth bailouts ad infinitum.
Quis custodiet ipsos custodes? said the Roman poet Juvenal. Who will guard the guards themselves?
Why, pronounce our modern day guards, we will. Trust us but don't task us lest you see trust in us lost to your peril.
Juvenal also said 'Already long ago, from when we sold our vote to no man, the People have abdicated our duties; for the People who once upon a time handed out military command, high civil office, legions — everything, now restrains itself and anxiously hopes for just two things: bread and circuses.'
Such thoughts in this our modern age are earnestly proclaimed to be a derivative of this ancient sage, namely ... juvenile.
Move along nothing to see here.
"Will readily admit that there was once a time that I thought Ron Paul was a nutjob. That time has long passed."
I've had the same revelation, brother. May we win many more converts to Dr. Paul. He is the right man to lead us through this crisis.
May I humbly suggest we all open our minds to previously dismissed ideas. Locate that round file where we've all dumped every conspiracy theory nut job idea, are-you-crazy outburst, not-in-a-million years pronouncement, roll-our-eyes-in-disgust pie-in-the-sky information and give them all a second and third look.
And this time, may we open our minds to the very slight possibility that we all have a tendency to see the world through biased preconceived narrow points of view. Once we have dismissed something, we rarely reexamine it again for validity, even when we stumble across new information or understanding.
If I described to you 2 years ago today's economic and monetary reality, you would have looked under my hat for tin foil. And yet here we are. Take another look folks. The only thing you have to fear is fear itself.
Cognitive dissonance and learned helplessness leads to cognitive helplessness and learned dissonance.
Free your mind and the jest will follow.
LOL
Surely you rest?
Well said CD.
Not in the least because of our so-called "education system". A more accurate description would be indoctrination system. But yet we accept it uncritically because that is the only system we know, or rather are "allowed" to know.
not to sound too paranoid, but the background noise you hear at night when you relax your mind, has a distinct transmitted electronic flavor. I've wondered on this subject for years, it is present 24/7, and it has a purpose, and no I don't have a tin foil hat, just thinking out loud. theres more, maybe I'll comment on it later. so big its ?????
I want to have Janet's baby.
Warren's asshole will be warm and tight when the revolution starts.
I am Chumbawamba.
he is old fart
I simply cannot believe that Mr. Buffet is unaware of the "inflation tax". He and his ilk will have you believe that it is just something occurring in nature or "just the way things are" and not a form of THEFT. I thought Mr. Buffet was just a hypocrite; it turns out that he is a THIEF as well.
Mr. Buffet is the ultimate propagandist of the most sinister kind. For the most part he appears charming, sincere and intelligent. Combine this with his down home aw-shucks act and people drop their defenses, thinking he's one of "us".
The most effective propaganda is the type that seeps in disguised as something else. His unassuming demeanour is his entry into our minds, leaving us open to his message and actions. This makes him an extremely effective vulture capitalist.
Most distressed companies don't often willingly, even joyfully, open the door to their own demise. Buffet not only gets ushered in as a savior but he's served tea and cookies as he disembowels his prey.
I couldn't have said it better.
Uncle Warren will probably not be here to see the day when the decisions he made at the last hours at Berkshire-Hathaway will come up and bite his company in the ass.
When the "coal trade" of BNI goes kaput because of the resurgence of natgas and the truth behind the trillions of derivatives at WFC rear their ugly heads, there will come the lament, "Oh, if only Warren had been here to guide Berkshire through the quagmire!"
As the pain wraps itself around his company, there will be no one to blame but the new guy. There can be, after all, only one Uncle Warren.
/:
the shares of berkshire hathaway a ( f.i.r.e.) co. will lose value much faster than a railroad. he just bought some insurance.
Don't forget the long-term puts Buffett wrote on 4 stock indices a couple of years ago. Maximum exposure if all indices went to zero is something like $37-$38 billion. That's not realistic, but if we have a couple of decades like the Nikkei (which peaked around 39,000 in 1989 and is under 10,000 20 years later), those puts could end up $20 billion in the money. Even though the puts can't be exercised before expiration, they are marked to market in Berkshire's quarterly results and can impact its financial ratings and flexibility.
"Uncle Warren will probably not be here to see the day when the decisions he made at the last hours at Berkshire-Hathaway will come up and bite his company in the ass."
You are too optimistic. Look at his portfolio - GS, Moody's, WFC, some Chinese car maker, some israeli tool maker, and lots of insurers who made bets selling long term puts (ie betting stock market would not fall, European options, but still need provisions). Many things could go wrong there.
I've written my two cents on St. Blowhard...
http://www.financialsense.com/editorials/collum/2009/0129.html
When snoopy was asked why he was on Charlie Brown’s team, he replied, “I play for whoever owns the supper dish.”
Isn’t it time that we realize that the philosophy and advice from the man from Omaha is tainted by his regular associations with the political and financial powers that run this country?
Here is Buffett giving Goldman his vote of confidence at a critical time last year. Here is Buffett lending a hand to Goldman’s “charitable” handout to small businesses last week. Here is Buffett standing with Schwarzenegger as he begins his first rocky steps at the governorship. Here is Buffett side by side with Hillary in the campaign seamlessly giving admiration to Obama as well. And here is Buffett as life-long friend of Washington Post owner Katharine Meyer Graham sliding into position as financial advisor and major shareholder; something of an eminence grise in the company.
And there is Graham's father, Eugene Meyer, who bought The Washington Post in 1933 at a bankruptcy auction after having just served as chairman of the Board of Governors of the Federal Reserve System, whose international banking house of Eugene Meyer (Lazard Freres) just happened to be among the original bank shareholders of the Federal Reserve Bank of New York—which controlled and still controls the entire system.
Good for you, Warren.
The shareholders of the banks that own the stock of the Federal Reserve Bank of New York are the people who have been at the center of our political and economic deities since 1914. They are the Rothschilds of Europe; Lazard Freres where Eugene Meyer’s father was a partner and where Eugene, who at 70 was to be the first head of the World Bank, first worked; Kuhn Loeb Company; Warburg Company; Lehman Brothers; Goldman Sachs; the Rockefeller family; and the J. P. Morgan interests.
These men whose life work is money have always known that great success is possible if one is close to the ruling power of the state. It’s interesting to look back on the careers of the Rothschild family in Germany, for example, and how it worked very closely with rulers to cultivate favor for profit, obtaining contracts for loans, advances and other profitable enterprises.
Amschel Meyer von Rothschild, son of the founder of the House of Rothschild, wrote a letter to Prince Metternich, an Austrian diplomat handling the affairs of Emperor Francis, that clearly demonstrates the priority the Rothschilds attached to their close relationships with the rulers. The Emperor had fallen ill in the spring of 1826 but was now recovering. Amschel’s letter:
I have by today’s post received the news of the fortunate recovery of his Majesty our universally loved emperor. Having suffered the greatest anxiety since the emperor fell sick it was one of the most joyful moments of my life when I heard the news.
Heaven has heard our prayers in preserving the greatest and most virtuous of monarchs, and thus allowing the world to continue to enjoy a good fortune, the greatness of which I can but marvel at without venturing to appraise. It is impossisbe to describe the radiant joy that lights up all faces—only angels could express in words our feelings of gratitude to Providence!
I cannot refrain from expressing to your Highness my congratulations on this blessed event. I would gladly make so bold as to lay my congratulations at the feet of his Majesty himself, our most benevolent emperor—so sincere and overwhelming are my feellings. May God preserve in full health this best father of mankind until the end of his days! And may it ever be my fortune in deepest reverence to call myself your Highness’s most humble and most obedient servant, Amschel Meyer von Rothschild. (Count Egon Caesar Corti, The Rise of the House of Rothschild, 1928, p 334.)
Let us be careful of the words coming from the men around the throne. “They who possess the prince possess the laws.” John Dryden, 1682
Google Warren Buffet corners silver market. Warren is part of the small club that all read the same trend reports and trade in the same directions to get the guarenteed trade. He was doing his part to protect the silver. He is not alturistic just tries to maintain (successfully) an altruistic public persona.
Buffet is an insider. He trades on knowledge and influence,which none of us have. The taxpayers bail him out to tunes of billions of dollars. He sees few problems with the system as it is, and talk is cheap coming from this guy. Go onto CNBC, they issued a clip with Gates and Becky Quick walking with Buffet in the rain. Buffet says: “I think it [The Fed] has terrific leadership now. And I think that curbing the independence of the Fed could lead to a lot of mischief.”
This man has 30% of portfolio in TARP recipient institutions. They were saved by trillions in bailouts. Some of his companies - WFC comes to mind own the Fed in good measure. The Fed is a private institution owned by member banks. The idea of an independent Fed is a major joke. They are biased, and their ownership determines their bias - the banking industry versus theAmerican people.
Lothar meanders around, circles chasing his erstwhile and cut-off tail, sniffs the air here and yon, and concedes.
Lothar lays down, jaw in paws, and weeps tiny doggie tears in the grass.
Lothar has met the enemy, and the enemy has won.
For now.
Here is Buffett giving Goldman his vote of confidence at a critical time last year. Here is Buffett lending a hand to Goldman’s “charitable” handout to small businesses last week. Here is Buffett standing with Schwarzenegger as he begins his first rocky steps at the governorship. Here is Buffett side by side with Hillary in the campaign seamlessly giving admiration to Obama as well. And here is Buffett as life-long friend of Washington Post owner Katharine Meyer Graham sliding into position as financial advisor and major shareholder; something of an eminence grise in the company.
And there is Graham's father, Eugene Meyer, who bought The Washington Post in 1933 at a bankruptcy auction after having just served as chairman of the Board of Governors of the Federal Reserve System, whose international banking house of Eugene Meyer (Lazard Freres) just happened to be among the original bank shareholders of the Federal Reserve Bank of New York—which controlled and still controls the entire system.
Good for you, Warren.