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Buffett Loses A Bet, Fails To Pay... Again

Tyler Durden's picture




 

On a day full of exultation for The Oracle of Omaha, we could not help but see the irony of Warren Buffett losing yet another bet and not paying up...

Now where have seen this before? Rolfe Winkler explains... Buffett's Betrayal... (from 2009)

When I was 14, Warren Buffett wrote me a letter.

 

It was a response to one I’d sent him, pitching an investment idea.  For a kid interested in learning stocks, Buffett was a great role model.  His investing style — diligent security analysis, finding competent management, patience — was immediately appealing.

 

Buffett was kind enough to respond to my letter, thanking me for it and inviting me to his company’s annual meeting.  I was hooked.  Today, Buffett remains famous for investing The Right Way.  He even has a television cartoon in the works, which will groom the next generation of acolytes.

 

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.

 

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. (Click chart to enlarge in new window)

 

buffett-bailout2

 

Without FDIC’s debt guarantee program, even impregnable Goldman would have collapsed.

 

And this excludes the emergency, opaque lending facilities from the Federal Reserve that also helped rescue the big banks. Without all these bailouts, the financial system would have been forced to recapitalize itself.

Banks that couldn’t finance their balance sheets would have sold toxic assets at market prices, and the losses would have wiped out their shareholder’s equity.  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 “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.

 

Keeping this in mind, I was struck by Buffett’s letter to Berkshire shareholders this year:

 

“Funders that have access to any sort of government guarantee — 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 government’s umbrella — have money costs that are minimal,” he wrote.

 

“Conversely, highly-rated companies, such as Berkshire, are experiencing borrowing costs that … 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.”

 

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 “atrocious sales practices” in the financial industry, holding up Berkshire subsidiary Clayton Homes as a model of lending rectitude.

 

Conveniently, he neglects to mention Wells Fargo’s toxic book of home equity loans, American Express’ exploding charge-offs, GE Capital’s awful balance sheet, Bank of America’s disastrous acquisitions of Countrywide and Merrill Lynch, and Goldman Sachs’ reckless trading practices.

 

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.

 

This is remarkably incongruous for the world’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 didn’t respond to my email seeking a comment.

 

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.

 

If we learn one lesson from this episode, it’s that banks should carry substantially more capital than may be necessary.  You would think Buffett would agree. He has always emphasized investing with a “margin of safety” — so why shouldn’t banks lend with one?

 

Yet he mocked Tim Geithner’s stress tests, which forced banks to replenish their capital. Why? Is it because his banks are drastically undercapitalized?  The more capital they’re forced to raise, the more his stake is diluted.

 

He points to Wells Fargo’s deposit funding model being more robust than investment banks’, but that’s no excuse for letting tangible equity dwindle to three percent of assets.  At that low level, the capital structure would have collapsed were it not for bailouts.

 

And by the way, the strength of Wells’ funding model is a result of FDIC insurance, among the government subsidies Buffett complains about in this year’s letter.

 

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?

*  *  *

America, F##k Yeah!!

 

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Sat, 05/02/2015 - 16:47 | 6054234 AIIB
AIIB's picture

The WHOREacle of Omaha!

Sat, 05/02/2015 - 16:57 | 6054266 farragut
farragut's picture

Anyone else getting a "404 Page Not Found" error on the Sacramento Bee link...?

Sat, 05/02/2015 - 17:41 | 6054372 malek
malek's picture

Same here. Remember the article is from 2009.

A fragment I found here http://www.americanthinker.com/blog/2009/04/warren_buffett_profits_heavi...

Sat, 05/02/2015 - 18:49 | 6054573 farragut
farragut's picture

Ah, of course. I now see the '2009' date stamp. Read too quickly the first go 'round and missed it. Thx, malek.

Sat, 05/02/2015 - 16:58 | 6054270 doctor10
doctor10's picture

Wonder just exactly how many congresscritters and senators and Fed.gov employees have their retirement tied up in BH?

Sat, 05/02/2015 - 17:06 | 6054295 williambanzai7
williambanzai7's picture

Sat, 05/02/2015 - 17:12 | 6054308 knukles
knukles's picture

I call dibs on his gold Rolex.  Fuck you, Charlie.... no bullion for you.

Sat, 05/02/2015 - 17:32 | 6054346 Pure Evil
Pure Evil's picture

It's probably fake just like him.

Sat, 05/02/2015 - 17:38 | 6054364 HowdyDoody
HowdyDoody's picture

Paying for losses? That's what taxpayers are for.

Sat, 05/02/2015 - 18:55 | 6054585 Fun Facts
Fun Facts's picture

With an ice cream cone in one hand and a hot dog in the other, Mr America fucks everyone in the ass.

Money buys great PR.

Sat, 05/02/2015 - 19:42 | 6054708 imbrbing
imbrbing's picture

Love how you signed your name in the upper left corner, a little freaky :)

Sat, 05/02/2015 - 23:13 | 6055291 SofaPapa
SofaPapa's picture

In your usual brutal style.  I love it!

Sat, 05/02/2015 - 17:44 | 6054379 j reuter
j reuter's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.jobs-review.com

Sat, 05/02/2015 - 19:16 | 6054633 Creepy A. Cracker
Creepy A. Cracker's picture

To: abuse at zerohedge dot com

Subject: Please delete the spammer account "j reuter"

It is a 100% spam account.  See their flood of spam comments, here:

http://www.zerohedge.com/search/user_comments?username=j+reuter

 

Sat, 05/02/2015 - 21:55 | 6055102 Squid-puppets a...
Squid-puppets a-go-go's picture

To: abuse at zerohedge dot com

Subject: Re: Please delete the spammer account "j reuter"

Dear Tyler

If j reuter is not deleted, along with any other similar posters, please explain in the handy thread below why ZH does not see fit to do so, as we regular readers are unclear why these experientially deleterious posts persist

Sun, 05/03/2015 - 01:11 | 6055487 Dolar in a vortex
Dolar in a vortex's picture

Need more Tyler's.

Sat, 05/02/2015 - 16:53 | 6054251 A Lunatic
A Lunatic's picture

Let me guess, Putins wallet was lying right beside it......

Sat, 05/02/2015 - 16:55 | 6054260 0b1knob
0b1knob's picture

Isn't that type of ammo explosive?   Why would the shells still be intact?

Sat, 05/02/2015 - 17:01 | 6054281 JLee2027
JLee2027's picture

Reminds me of the company owner and my ex-employer who invited me to lunch then claimed he had no money and I had to pay for both of us. What a bum.

 

Sat, 05/02/2015 - 17:34 | 6054351 Pure Evil
Pure Evil's picture

Reminds me of a fellow worker that would go to group lunches where the bill was split evenly and then order up while everyone kept to a budget.

I called the sun of biatch on it the second go round.

Sat, 05/02/2015 - 21:32 | 6055043 armageddon addahere
armageddon addahere's picture

How is he at washing dishes? We would have found out if I was there.

Sat, 05/02/2015 - 17:08 | 6054300 Coke and Hookers
Coke and Hookers's picture

Looks like a Ukie air force roundel on the wing of the plane seconds later in the video.

Sat, 05/02/2015 - 17:16 | 6054316 HowdyDoody
HowdyDoody's picture

The shell came from a shot-down Su 25. The insignia on the wing is visible at 1:51.

Sat, 05/02/2015 - 16:52 | 6054246 A Lunatic
A Lunatic's picture

Well there's your problem, You thought he was better than this........

Sat, 05/02/2015 - 17:07 | 6054299 williambanzai7
williambanzai7's picture

Sat, 05/02/2015 - 17:24 | 6054331 Weaponized Innocense
Weaponized Innocense's picture

he he ha Ha HA HAA ha ha

Sat, 05/02/2015 - 16:52 | 6054247 kchrisc
kchrisc's picture

Buffett: Eminence front for Zion.

https://www.youtube.com/watch?v=GnHLgxKUsEA

Liberty is a demand. Tyranny is submission.

Sat, 05/02/2015 - 16:56 | 6054259 Gone Full Retard
Gone Full Retard's picture

Remember when BAC was trading at $1?

ZH'ers were like that's grossly overvalued.

Sat, 05/02/2015 - 17:36 | 6054358 scubapro
scubapro's picture

it was.  and now its more overvalued.   true worth then was more like -$100/share.

Sat, 05/02/2015 - 16:56 | 6054262 phoenixdark
phoenixdark's picture

awesome.

Sat, 05/02/2015 - 16:57 | 6054265 kowalli
kowalli's picture

they are thieves and murderers, nothing new

Sat, 05/02/2015 - 17:02 | 6054285 Larry Dallas
Larry Dallas's picture

great article. Love @LizClaman following him around with those big Jew tits of hers swinging out and about.

Sat, 05/02/2015 - 17:27 | 6054341 Weaponized Innocense
Weaponized Innocense's picture

Was she too bisy to sit on her molesting daddys lap and abuse her mommy?

Sat, 05/02/2015 - 17:14 | 6054314 R19
R19's picture

He's such a nice man just eating an ice cream cone. SATAN'S DISCIPLE.

Sat, 05/02/2015 - 17:35 | 6054353 scubapro
scubapro's picture

 

i just hope he lives long enough to to see the crash

Sat, 05/02/2015 - 17:46 | 6054388 Pure Evil
Pure Evil's picture

I hope he lives long enough to have a massive stroke and ends up lying in bed all day while Obama's jiz drips off his chin.

Sat, 05/02/2015 - 18:00 | 6054449 HowdyDoody
HowdyDoody's picture

as his head rolls into the basket (channeling kchrisc)

Sat, 05/02/2015 - 18:16 | 6054509 hotdoggin
hotdoggin's picture

No surprise here. Telling a story of hard and smart work sells better than cashing in on an upwards financial transfer.

Sat, 05/02/2015 - 18:30 | 6054533 divedivedive
divedivedive's picture

What happened to Carlos Slim ? Is he no longer the richest person in the world ?

 

Sat, 05/02/2015 - 19:27 | 6054671 silverer
silverer's picture

He forgot to cross into the US over the border without ID to apply for his bailout.

Sat, 05/02/2015 - 18:32 | 6054540 Haka Matohi
Haka Matohi's picture

You feel me?

Sat, 05/02/2015 - 19:33 | 6054687 Yen Cross
Yen Cross's picture

  Typical addict...  Buffett BAC warrants are like liquid financial crack.

Sat, 05/02/2015 - 20:17 | 6054821 oncefired
oncefired's picture

Every picture I see of this clown............ He is perfectly lined up for me to knock him out with one punch

Sat, 05/02/2015 - 21:09 | 6054974 Nawaralsaadi
Nawaralsaadi's picture

Does anybody believe Warren would have initiated the giveaway pledge if he wasn't dying of old age?. The disease of building or aspiring to build multi-billion dollar fortunes is at the root cause of many of the ills in our society today and Warren wins out hands down. 

Sat, 05/02/2015 - 23:17 | 6055305 WTFUD
WTFUD's picture

(FREE)Buffett & Mongrel = Burke & Hare

Sat, 05/02/2015 - 23:29 | 6055322 RichardParker
RichardParker's picture

Buffet forgot to mention how Berkshire was miraculously spared the TBTF label (unlike nine primary insurance companies) which could have stipulated that it would have to hold more capital to cover unexpected losses...

Free access to FT article behind paywall here:

http://www.reddit.com/r/berkshirehathaway/comments/33fdqz/british_regula...

 

Sat, 05/02/2015 - 23:53 | 6055363 spqrusa
spqrusa's picture

The "rich" 1% suckers need to pay for the excesses of the .01%

Billary is right in saying she will go after the 1% (at the behest of the %.01 who don't like competition...)

Sun, 05/03/2015 - 12:48 | 6056469 Comte d'herblay
Comte d'herblay's picture

They will not keep that promise, and InTrade odds are guaranteeing they won't. 

Sun, 05/03/2015 - 00:56 | 6055458 monad
monad's picture

Since I can remember in my county Buffet is big into RE. Bigger now than ever. There was a lot of military business here up to Clinton, and secondary housing/population scale profits. if you knew what the green suits were planning.

Traitors dress as much as possible like saints.

Sun, 05/03/2015 - 01:23 | 6055503 aquarian1
aquarian1's picture

In the midst of the financial crisis when Aon (sp? I might have the name wrong a huge insurance and financial company in the USA) was about to go under (shares down to 87 cents I believe) Buffet would have huge holding in derivatives and CDO that would would have fallen to zero and wiped him out - pleaded for its bailout.

Sun, 05/03/2015 - 03:39 | 6055649 BI2
BI2's picture

He's too big to pay ;-)) he needs a Heart Adjustment >>> http://wp.me/p4OZ4v-20E

Sun, 05/03/2015 - 07:32 | 6055830 Dickweed Wang
Dickweed Wang's picture

This is the same guy who says gold is just a lump of metal that can't do anything for you? Yeah, right . . . .

Sun, 05/03/2015 - 11:42 | 6056302 Chuck Knoblauch
Chuck Knoblauch's picture

psychopaths never lose

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