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


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2015 May 2, 7:50pm   16,111 views  25 comments

by mell   ➕follow (9)   💰tip   ignore  

http://www.zerohedge.com/news/2015-05-02/buffett-loses-bet-fails-pay-again

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...

The two richest men in the world face off. Buffett doesn't pay up. pic.twitter.com/m0PMUZpWWU
— Chris Dignam (@Chris_Dignam) May 2, 2015
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!!

Comments 1 - 25 of 25        Search these comments

2   indigenous   2015 May 2, 8:55pm  

According to the Wogster this is irrelevant...

3   tatupu70   2015 May 3, 8:11am  

Well, even if this hit piece were true, how does it relate to his suggestion that capital gains tax rate needs to be raised?

Don't you guys see that these kinds of articles are written by folks like the Koch Bros. to fool people like you?

4   anotheraccount   2015 May 3, 8:56am  

tatupu70 says

Don't you guys see that these kinds of articles are written by folks like the Koch Bros. to fool people like you?

It does not matter who it's written by. Can you refute the info in the article?

5   tatupu70   2015 May 3, 8:59am  

tr6 says

It does not matter who it's written by. Can you refute the info in the article?

What is there to refute? That he would have lost a lot of money had the government bailout not been passed? No shit. That makes him the same as everyone else who had any money. Is that some sort of big scandal?

6   anotheraccount   2015 May 3, 9:01am  

I was appalled by some of the q&a at Berkshire shareholder meeting:

- Clayton homes: it's ok to charge low income people 15% interest on manufactured homes (when most people can get mortgages under 5%)
- Coke: sugar softens your arteries as you get older (never mind that we have an obesity and diabetes problem that costs the economy more a year than the market cap of Coke)
- working with 3G - it's ok to keep laying people off and use tax evading inversion strategies

How can any Democrat defend Berkshire? This is a Republican's dream company.

7   anotheraccount   2015 May 3, 9:05am  

tatupu70 says

What is there to refute? That he would have lost a lot of money had the government bailout not been passed? No shit. That makes him the same as everyone else who had any money. Is that some sort of big scandal?

It's not a scandal. My point is that it does not matter who wrote the article.

Many Democrats make Buffet into a hero because he called for higher taxes. It's all words, his actions have always been the opposite. Plus unlike Koch brothers, who lobby to reduce taxes, he does not lobby to raise taxes.

8   tatupu70   2015 May 3, 9:08am  

tr6 says

Many Democrats make Buffet into a hero because he called for higher taxes. It's all words, his actions have always been the opposite. Plus unlike Koch brothers, who lobby to reduce taxes, he does not lobby to raise taxes.

I don't know if he's a hero, but he is correct. One of the few 1%ers who put the interests of the country over their own self interests. That is somewhat admirable.

How have his actions been different? His support of the bailout was to help the country as well as his companies. He does have an obligation to his shareholders.

9   Strategist   2015 May 3, 9:15am  

tr6 says

- Clayton homes: it's ok to charge low income people 15% interest on manufactured homes (when most people can get mortgages under 5%)

Trailer and mobile homes are personal property. If you borrow against personal property, with shitty qualifications, where defaults are high, you will have high interest rates. If Buffett was making a killing, other financial companies would be scrambling to do the same, and the competition would bring the rates down.

10   anotheraccount   2015 May 3, 9:17am  

tatupu70 says

One of the few 1%ers who put the interests of the country over their own self interests

- tax inversion deal with 3G: Burger King. Charging low income people 15% for mortgages. Promoting obesity and diabetes ("I am quarter cherry coke"). Not lobbying for higher taxes.

Where do he put his own interests over the country again?

11   anotheraccount   2015 May 3, 9:20am  

Strategist says

Trailer and mobile homes are personal property

Not if put them on the foundation. The article I read uses an example of a family that spend 15,000 for a foundation and then were told that their interest would be 15%.

12   tatupu70   2015 May 3, 9:23am  

tr6 says

tax inversion deal with 3G: Burger King. Charging low income people 15% for mortgages. Promoting obesity and diabetes ("I am quarter cherry coke"). Not lobbying for higher taxes.

Where do he put his own interests over the country again?

Tax policies, economic policies. He does run corporations in a free market. He wants to change the laws, but as long as the laws are in place, he has an obligation to maximize shareholder return. He's not Mother Teresa, especially not with his shareholder's money.

And I think you're being a bit dramatic by equating enjoying cherry coke with promoting obesity and diabetes, don't you think?

13   anotheraccount   2015 May 3, 9:32am  

tatupu70 says

He wants to change the laws

If he did, he would put some money into lobbying for higher taxes or at least equal taxes on capital gains just like Romney did or Koch brothers do. Buffet's companies lobby for all the things that he supposedly opposes.

tatupu70 says

And I think you're being a bit dramatic by equating enjoying cherry coke with promoting obesity and diabetes, don't you think?

Selling Coke products is no different than selling cigarettes. As long as he is says stupid things like "i am quarter cherry coke" he is promoting sugar which is a root cause of Obesity and diabetes.

14   tatupu70   2015 May 3, 9:47am  

tr6 says

If he did, he would put some money into lobbying for higher taxes or at least equal taxes on capital gains just like Romney did or Koch brothers do. Buffet's companies lobby for all the things that he supposedly opposes.

Example? And why do you think he doesn't put money into lobbying for higher taxes/equal taxes on capital gains? He donates to candidates who are for this policy. He speaks out about these policies and inequality often.

tr6 says

Selling Coke products is no different than selling cigarettes. As long as he is says stupid things like "i am quarter cherry coke" he is promoting sugar which is a root cause of Obesity and diabetes.

You're kidding, right? The addiction rate of smoking and the addiction rate of coke are a bit different. Regardless, you are on a very slippery slope--where do you draw the line? How much sugar is too much? How about fatty foods? Do you advocate the government telling us what we can or can't eat and drink?

15   anotheraccount   2015 May 3, 9:57am  

tatupu70 says

He donates to candidates who are for this policy. He speaks out about these policies and inequality often.

You are right. He does donate. I just don't see any results of his donations. His actions to use tax inversion deal with Burger King and Tim Horton's completely opposes his "higher taxes" mesage

.tatupu70 says

How much sugar is too much?

41g a can is too much. Yes, processed and fast food should be regulated to improve quality because the cost of taking care of diabetes is far higher than any benefits we get from cheaper food.

16   tatupu70   2015 May 3, 10:04am  

tr6 says

You are right. He does donate. I just don't see any results of his donations. His actions to use tax inversion deal with Burger King and Tim Horton's completely opposes his "higher taxes" mesage

Not at all. Like I said--he has an obligation to follow the laws that are in place, regardless of whether he agrees with them. And to maximize shareholder value. And, unfortunately, we keep electing Republicans that block any action that leads to higher capital gains taxes

tr6 says

41g a can is too much. Yes, processed and fast food should be regulated to improve quality because the cost of taking care of diabetes is far higher than any benefits we get from cheaper food.

I don't necessarily disagree, but that's a much easier thing to talk about than it is to actually do. Look at NYC's experience with regulating soda--it was a VERY unpopular law.

17   anotheraccount   2015 May 3, 10:07am  

tatupu70 says

Like I said--he has an obligation to follow the laws that are in place, regardless of whether he agrees with them. And to maximize shareholder value.

That's the argument Republicans make in defense of Romney's 10% tax rate. Buffett, Soros, Romney are all using tax loop holes. In my opinion Buffet is not better than Romney because it's 2015 and these loopholes still exist and as far as I can tell are not going to change any time soon. I used to be a Buffet fan too.

18   tatupu70   2015 May 3, 10:17am  

tr6 says

That's the argument Republicans make in defense of Romney's 10% tax rate. Buffett, Soros, Romney are all using tax loop holes. In my opinion Buffet is not better than Romney because it's 2015 and these loopholes still exist and as far as I can tell are not going to change any time soon. I used to be a Buffet fan too.

But what else can Buffett do? He speaks out often about these issues. He donates to candidates that promise to raise cap gains and close loopholes. He votes for these candidates. Unfortunately, he is only one vote and the too much of the electorate is persuaded by the Koch Bros. propaganda and votes for Republicans.

The difference between Buffett and Romney or Koch is that Buffett wants to change things to help the public, while Koch and Romney want to change things to help themselves.

19   MMR   2015 May 3, 12:25pm  

tr6 says

processed and fast food should be regulated to improve quality because the cost of taking care of diabetes is far higher than any benefits we get from cheaper food.

Mcdonalds has been getting killed for nearly 2 years;

http://fortune.com/2015/01/23/mcdonalds-us-sales-slide/

http://www.economist.com/blogs/economist-explains/2015/01/economist-explains-7

http://www.reuters.com/article/2015/04/22/us-mcdonalds-results-idUSKBN0ND1CX20150422

20   MMR   2015 May 3, 12:39pm  

tatupu70 says

The addiction rate of smoking and the addiction rate of coke are a bit different.

I don't know about coke but caffeine and sugar are definitely addicting, but the addiction rates aren't well studied, since the problem of 'sugar addiction' isn't well defined or understood; however, the health problems strongly associated with excess sugar consumption (DM, Hypertension, Hyperlipidemia, cardiovascular disease) it is a public health problem that has gotten worse since 1980.

Cigarette smoking rates have been in decline since 1965

http://www.cdc.gov/tobacco/data_statistics/tables/trends/cig_smoking/

sugar addiction,

http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2235907/

Diabetes rate in the US

http://www.telegraph.co.uk/news/worldnews/northamerica/usa/11232747/Americas-sugar-addiction-Just-how-bad-is-it.html

Per capita consumption of sugar by country

http://www.washingtonpost.com/blogs/wonkblog/wp/2015/02/05/where-people-around-the-world-eat-the-most-sugar-and-fat/

21   MMR   2015 May 3, 12:47pm  

Market cap of coke: 178.31 billion

http://finance.yahoo.com/q?s=KO

Cost of Diabetes(2012): 245 Billion

http://www.diabetes.org/advocacy/news-events/cost-of-diabetes.html

Cost of smoking(2014): 300 Billion

http://www.cdc.gov/tobacco/data_statistics/fact_sheets/fast_facts/

22   anotheraccount   2015 May 3, 2:21pm  

APOCALYPSEFUCKisShostikovitch says

I don't understand your thinking--Buffett doesn't have the power to change these laws. The people keep electing Republicans who will die before they raise capital gains taxes. Or get rid of the loopholes that favor the 1%. He speaks out on these issues, he donates to candidates who support raising cap gains, he votes for those candidates. But at the end of the day, it's up to the rest of the electorate to vote similarly so we have politicians that will change the laws.

I believe Democrats had majority in 2009. Instead of focusing on income inequality and taxes, they passed half ass healthcare reform.

23   tatupu70   2015 May 3, 3:02pm  

tr6 says

believe Democrats had majority in 2009. Instead of focusing on income inequality and taxes, they passed half ass healthcare reform.

They only had a filibuster proof majority for a very short time, and there are too many conservative democrats that wouldn't vote for tax increases. Not only do you have to NOT vote Republican, you also have to find the right Democrats....

24   anotheraccount   2015 May 3, 3:44pm  

tatupu70 says

They only had a filibuster proof majority for a very short time, and there are too many conservative democrats that wouldn't vote for tax increases. Not only do you have to NOT vote Republican, you also have to find the right Democrats....

Then based on your assessment capital gains tax rate is not likely to go up for another 10 years at least because the was the most political capital Democrats had in a long time.

25   tatupu70   2015 May 3, 4:34pm  

Call it Crazy says

How did we know Tat would respond with this excuse?

Because I prefer to post facts?

Call it Crazy says

Why? Because the current members of your blue team suck?

First--it's not my team. But, yes, some of them suck and some of them don't. Which beats the Republicans, who all suck.

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