Posts tagged mr buffett
The Goldman defenders
May 4th
Is it just me, or are the defenders of Goldman Sachs becoming more vocal and more numerous these days? Andrew Ross Sorkin today seems to come down squarely on the side of Warren Buffett and Bill Ackman, defending Buffett from accusations that his stance on Goldman is self-serving (”his stake in Goldman is more a loan than an investment, so he’ll no doubt be paid no matter what happens with the Abacus suit”) and agreeing with Buffett that there seems to be something of a witch-hunt going on:
With so many easy targets of the financial crisis — Fannie Mae, Freddie Mac, A.I.G., Bear Stearns, Lehman Brothers — it does seem odd that the government, and the public, has chosen to vilify one of only a couple of firms that made fewer mistakes than the rest.
The problem is that this makes no sense. Does Sorkin really believe for one moment that the other firms on his list haven’t been vilified? After all, he himself wrote a column last year explaining that that the vilification at AIG was so bad that you wouldn’t want to work there for less than $3 million a year.
More invidiously, Sorkin twice plays the cunning game of stating the SEC case against Goldman in ways that makes it easy to criticize. “The S.E.C. has accused Goldman of not disclosing that the Abacus instrument was devised in part by a short-seller, John Paulson, who stood to gain by betting against it,” he writes, accurately enough, and then lays out the opposite case:
“For the life of me, I don’t see whether it makes any difference whether it was John Paulson on the other side of the deal, or whether it was Goldman Sachs on the other side of the deal, or whether it was Berkshire Hathaway on the other side of the deal,” Mr. Buffett said…
One Berkshire shareholder who has been a regular in Omaha is Bill Ackman…
In recent days, he has gone even further than Mr. Buffett in his defense of Goldman, suggesting it would have been unethical for the firm to disclose Mr. Paulson’s position in the Abacus deal. He says that Goldman, as the market maker, had a duty to protect the identity of both sides of the transaction.
He agrees with Mr. Buffett that as an investor, he would not have considered it necessary to know that Mr. Paulson had helped select the securities.
But this is a bit of a straw man, as Sorkin well knows. The heart of the SEC case is not that Goldman failed to disclose Paulson’s name. It’s that Goldman failed to disclose the fact that the sponsor of the deal, the fund which was paying Goldman $15 million to put it together, was going short the entire thing. The Magnetar disclosure, for instance, which the SEC presented to Goldman as an example of what the bank should have done, never actually reveals Magnetar’s name or identity. But it does make it clear that the Initial Preferred Securityholder might be shorting the deal and that its interests are not necessarily aligned with those of the investors.
What’s more, Buffett and Ackman have made their careers, and become extremely wealthy, by analyzing and picking individual securities. That’s what they’re especially good at. Neither of them in a million years would invest in a CDO managed by someone else, like ACA: they compete with the likes of ACA. IKB, by contrast, specifically asked for an independent CDO manager, and said that it would not be happy with Goldman itself selecting the contents of the CDO. That’s not the kind of action that you’d expect from someone who thinks that a simple list of reference securities comprises “all the relevant facts that any investor would need”, in Sorkin’s words.
ACA, here, is a bit like a mutual fund manager, and IKB was an investor in that fund. The argument from Buffett and Ackman is essentially that so long as fund investors know what their fund manager is investing in, they shouldn’t really care who that manager is. It’s silly, especially coming as it does from two men who have made a fortune by setting themselves up as great stewards of other people’s money.
John Gapper is much more sensible on the whole affair, throwing prior Buffett statements back at him, especially the one from 2002 where he complains that derivatives are nearly always mispriced until it’s far too late. He says that “the shareholders of Berkshire Hathaway were disappointed by Warren Buffett’s defence of Goldman Sachs”, while Sorkin prefers to say that “by the end of Berkshire’s annual meeting, at least some of the 40,000 shareholders in attendance who had been skeptical of Goldman” had come around to Buffett’s way of thinking. I suspect that Gapper’s characterization is the more accurate.
But it seems that Goldman is drumming up a certain amount of what it likes to think of as “third-party validators” these days, including this astonishing statement from law professor Richard Epstein:
At the time of the ill-fated Goldman transaction, no one in the CDO market thought they were governed by any full disclosure regime. It was everyone for himself, and for good reason.
Hm. I wonder, in that case, why there was a 196-page prospectus for the deal, full of dense, disclosure-filled legalese.
Warren Buffett Fails To Get Derivatives Loophole
Apr 26th
By Frank James
Warren Buffett. (Seth Wenig / AP Photo)
Just because you’re one of the world’s best-known billionaires and close to President Barack Obama’s White House doesn’t mean you always get your way.
At least, that’s what appears to be the case from a Wall Street Journal story. WSJ.com reports that Warren Buffett’s Berkshire Hathaway was seeking legislative language in the financial derivatives regulation bill produced by the Senate Agriculture Committee that would’ve kept the company from needing to put up more money as collateral for billions of dollars in derivative positions the company has.
But the provision Berkshire lusted after was removed.
WASHINGTON–Senate Democrats agreed Monday to kill a provision from their derivatives bill pushed by Berkshire Hathaway that would have allowed the company to avoid a significant financial hit, people familiar with the matter said.
Sen. Ben Nelson (D., Neb.) initially helped push the provision into a bill passed by the Senate Agriculture Committee last week. It would have prohibited the government from requiring companies to hold collateral against their existing derivatives trades. The change would have aided Berkshire, which has a $63 billion derivatives portfolio, according to Barclays Capital.
Berkshire Chief Executive Warren Buffett has been able to use the company’s strong financial position to post little collateral against its big derivatives portfolio, freeing up capital for investing elsewhere.
The provision’s demise is a blow to Berkshire Hathaway, which had lobbied strongly for its inclusion, and could bring challenges from other companies who contend Congress can’t force them to amend the terms of existing contracts.
As reporter Damian Paletta notes, there’s some irony in Buffett not getting the help with the derivatives he sought since he has been famously critical of them.
Mr. Buffett’s push was notable because he has warned of the potential dangers of derivatives, famously branding them “financial weapons of mass destruction.”
The more conservative, that is, higher collateral requirement is one way federal policymakers hope to reduce the destructiveness of the financial tools.
More collateral would make it more likely companies could pay their obligations if they find themselves betting the wrong way through their derivatives.
This appears to be a case where Buffett’s line about financial WMD meets the old Washington wisdom that the position one takes on an issue depends on whose ox is being gored.
College Rejection Letters Don’t Equal Failure In Life
Mar 24th
By Frank James
We’re nearing the time of year when high school students will race to their mailboxes in hopes of finding acceptance letters from the colleges of their dreams.
For a fair number of them, the return trip will be filled with grief and tears as they deal with the pain of rejection. In some instances, it will be the first major setback of their still young lives.
But it’s important for young people, and their parents, to keep those rejections in perspective. That’s the take-away message in a Wall Street Journal piece by my old boss Sue Shellenbarger.
She talks with icons of American success — billionaire Warren Buffett, “Today” show host Meredith Vieira and Nobel laureate in medicine Harold Varmus, all of whom were rejected by Harvard. (Based on this article, you might come away concluding that being rejected by that school is a prerequisite for super success.)
Anyway, the article establishes that not only does life go on after such a rejection but that it can be glorious.
A snippet:
“The truth is, everything that has happened in my life…that I thought was a crushing event at the time, has turned out for the better,” Mr. Buffett says. With the exception of health problems, he says, setbacks teach “lessons that carry you along. You learn that a temporary defeat is not a permanent one. In the end, it can be an opportunity.”
Mr. Buffett regards his rejection at age 19 by Harvard Business School as a pivotal episode in his life. Looking back, he says Harvard wouldn’t have been a good fit. But at the time, he “had this feeling of dread” after being rejected in an admissions interview in Chicago, and a fear of disappointing his father.
As it turned out, his father responded with “only this unconditional love…an unconditional belief in me,” Mr. Buffett says. Exploring other options, he realized that two investing experts he admired, Benjamin Graham and David Dodd, were teaching at Columbia’s graduate business school. He dashed off a late application, where by a stroke of luck it was fielded and accepted by Mr. Dodd. From these mentors, Mr. Buffett says he learned core principles that guided his investing. The Harvard rejection also benefited his alma mater; the family gave more than $12 million to Columbia in 2008 through the Susan Thompson Buffett Foundation, based on tax filings.
The lesson of negatives becoming positives has proved true repeatedly, Mr. Buffett says. He was terrified of public speaking–so much so that when he was young he sometimes threw up before giving an address. So he enrolled in a Dale Carnegie public speaking course and says the skills he learned there enabled him to woo his future wife, Susan Thompson, a “champion debater,” he says. “I even proposed to my wife during the course,” he says. “If I had been only a mediocre speaker I might not have taken it.”
The article makes an important point, so much so that college admissions officers might want to get reprint rights so they can send out copies with rejection letters to buck up those who didn’t make the cut. Just a thought.
It also reinforces what college admissions officers, especially at the most selective schools, often say. They know that most rejected applicants will go on to have excellent college experiences elsewhere and successful work lives. So admissions officials don’t lose a lot of sleep over such rejections and neither should rejected applicants.
It’s important to be reminded of this, especially this year with applications for college admission at record levels this year at many institutions.
There will be more tears this year than past years. But rejection by a college admissions official doesn’t equal failure in life. Unless you let it.
Buffett lets public down…again
Jan 23rd
Posted by PostMan in commentaries
7 comments
The public has always seen in Warren Buffett a different kind of capitalist, an honest observer providing sound financial advice regardless of his personal interests. But is he?
When it comes to his own holdings Buffett seems to use a carefully cultivated reputation for financial rectitude to feather his own nest.
On Wednesday he came out against Obama’s proposed bank tax, but his comments were inconsistent. On one hand he’s always maintained banks needed to be bailed out, yet he opposes ways to make them pay for it. At this point, financial giants in which Buffett has large stakes — Wells Fargo, Goldman Sachs and General Electric — all benefit from an implicit too-big-to-fail government insurance policy. How can Mr. Buffett, an insurance executive, argue that it’s inappropriate to charge them for it?
This is just the latest example of Buffett talking his book.
Buffett also lobbied for and profited greatly from the bailouts. He invested in Goldman, he said, with the expectation that Congress would “do the right thing” by passing the Troubled Asset Relief Program. In other words, it was a bet on a bailout.
Later he mocked the stress test, which forced over-leveraged banks to raise needed capital. This was bad for Buffett because it diluted his stakes in banks.
Less well-known is that Buffett was the first to propose a private-public partnership structure in order to rescue troubled banks. In a letter to Hank Paulson in the fall of ’08, cited in Andrew Ross Sorkin’s recent book, Buffett pitched his idea for a “public-private partnership fund” that would use public debt to finance private bets on toxic assets. When Tim Geithner rolled out a similar plan a few months later, it was widely panned as a giveaway to banks.
Buffett later complained about bailouts in his annual letter to Berkshire investors, saying that government subsidized funding put firms like Berkshire at a disadvantage. He failed to note that public subsidies — in particular FDIC’s Temporary Liquidity Guarantee Program — helped to keep afloat the eight banks in which Berkshire had a stake. From the end of ’08 through July of ’09, 75 percent of the debt sold by these eight banks came with the explicit government guarantee offered by TLGP. Without it, many might have failed, wiping out Berkshire’s equity stake.
It takes chutzpah to lobby for bailouts, make trades seeking to profit from them, and then complain that those doing so put you at a disadvantage.
Those who follow him closely are well aware that he talks his own book, but the wider public still believes him to be a trustworthy broker of unbiased financial advice and commentary. They shouldn’t.
Buffett didn’t respond to requests for comment.