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Questioning Warren Buffett's Role
I've spent most of the day traveling, and have had a bit of time to think, and one of the things I started pondering was how no one has bothered to ask about the propriety of Warren Buffett's role in this $700 billion orgy of disaster capitalism. Consider these facts:
- Buffett is one of the top economic advisers to Barack Obama, a senator whose influence over whether this bailout passes is, ahem, not small.
- Buffett took a sizable stake in Goldman Sachs today, investing $5 billion in the company. This came after Goldman reorganized itself in a way that will make it better able to capitalize on the bailout windfall.
- Sure enough, Bloomberg News reports that if this bailout passes, it will mean a potentially huge windfall for Goldman Sachs - ie. now for Buffett. Additionally, Obama has now said he doesn't want the bailout measure to include any bankruptcy reform measures that would end up forcing bailout recipients like Goldman Sachs to take on more losses.
Knowing all of these irrefutable facts, am I out of line to think Buffett's role -- and the Obama people allowing him to play this role -- could be perceived as a wee bit shady?
He's heavily investing in a company that stands to make a huge windfall if the bailout passes, and he's simultaneously advising the guy whose support is critical for passing the windfall. I'm not in any way saying Buffett already has insider information that Obama is going to support the bailout -- that seems like the insider trading-ish behavior Democrats say they want to stop.
But I am wondering why no one has even bothered to ask whether Buffett's dual role in all this is appropriate? Look, I'm sure Buffett is a great guy, and its terrific he's planning to donate a lot of his money to charity. But appearance-wise, this doesn't look good -- it seems, in fact, to reinforce the whole disaster capitalism image of this bailout. While there may be no overt improprieties here, while Buffett certainly may just be independently investing and then independently advising Obama, and while I know we are never ever supposed to question the awesomely unquestionable awesome Warren Buffett, the image that his dual role projects is not one that should inspire any confidence that this bailout is in the public's interest. I don't think I'm being a conspiracy theorist when I ask whether we should at least be asking about this (after all, something can't be a conspiracy if the facts are right out in the open).
How is it that no major journalist or news organization has asked simple questions about Buffett's role? And how is it that Obama's people aren't worried that McCain -- the quintessential opportunist -- is going to roll out the questions on their own, in the form of an attack ad? And how come progressives aren't asking those questions? Think of it this way -- if this was a McCain adviser doing the same thing, would we not question it?
I just want to state for the record that the reason I'm asking this question is not to bash Obama (and for those who think I am, please -- use the comments section to explain to me how anything in this post is factually inaccurate in a way that spins up some sort of dishonest "attack" on Obama). As I've said, this is really not about the candidates or the election. This bill is way more important than that right now. The reason I ask this question is because the whole situation has a nasty stench around it, and I'm really curious which actors are helping emit that stench.
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David,
While I agree that there is an "appearance" problem here, I cannot figure out what the central point of your article is.
You carefully disclaim any assertion of actual improprieties, yet conclude the article with reference to the "stench" surrounding Buffett's Goldman deal. If there is any call to action in your post, it is for someone in the MSM to investigate/question the deal and Buffett's possible involvement in the bailout bill -- implying rather strongly that you think ol' Warren has done something wrong, maybe using "insider information".
C'mon. Buffett has said publicly that one of the considerations in making the investment is that he's certain that Congress will pass some kind of bailout. This is not "insider information", this is common knowledge. BTW, Buffett was NOT a big cause of this crisis. He's been loudly warning about credit derivatives for years, and had his Berkshire companies stop participating in the derivative business quite some time ago.
The DETAILS of the bailout plan might be insider information, but the details will have very little to do with the success of Buffett's investment -- all he needs is SOME plan that unfreezes the credit markets, which will happen because the alternative is global economic collapse.
I suppose Obama could dis-invite Buffett as an economic advisor, like Schwarzeneggar did when Warren mentioned that California's Prop 13 property tax law is insane.
Stench, huh? What you really have here is "Dog Bites Man" == "Warren Buffett Makes A Profitable Deal".
Well said. I first read his lament about derivatives in 2002 and then had to look up what a derivative was. I know what they are in a bit of detail. What I do not know or understand is how the banks could leverage 4 to 30 times the original value? What process is used? Does Goldman sell it to Lehman and then back 30 times? Also, I have never read a real world example of a derivative, i.e. price paid for a derivative on $100K mortgage and then how much money can be leveraged from the 30 years worth of payments for this derivative. Who sets the value etc.? I just know the total market is estimated at $63 tn.
I have looked and asked for this information before. Any enlightenment would be appreciated. I think it is funny that a liability can be counted as an asset and then borrowed against.
I dont see the big deal here. I was considering investing my first small amount of money in the stock market (like 500.00 dollars) in Wamu because
1. they are a good company besides these bad loans
2. I watch the news and can see that one way or another the bailout will pass.
3. my daddy told me to buy low and sell high. (that and there is only two ways to have more money buy less or make more)
I don't see why would should be criticizing Warren Buffet for making a smart choice. Plus maybe he is being patriotic by investing heavily now when we need people to invest in America.
If you look at all these players in this, they have aged tremendously in just the recent few years.
And odds are they will die clutching those dollars never realizing that hey were consumed by the
endless and really fruitless chase of those dollars.
Yes it is nice to have money but at what cost. And how mauch can you actually spend that benefits you as a whole.
They are obsessive wich is like any addiction, unhealthy.
Let them have it. Let's go do some yoga and go to the beach.
These guys will be dead soon enough.
Somewhere I heard that Buffet was suggesting a $200 billion bailout rather than the stupendous $700 billion one. Please tell me if this is true. Thanks.
Buffet is not making deals in a smoke filled back room like most of the shady characters in this play. He has always been transparent. He is an extremely brilliant man. If he was conjuring up a shady deal I can guarantee he would not be publicizing it.
I watched an interview of Buffet on FBN yesterday (actually, clips of the interview via Yahoo business video). He was quite open about his actions-that buying Goldman was done for pure business reasons. He was certain that the bailout would go through, because the alternative would be disaster. I am paraphrasing him here. I know little about financials & markets. But what he said was interesting: T-bills (where investors park cash/short term investments) are at 5 basis points- means interest paid on this money is almost zero. This is because demand is so high now. He said we are very close to going into negative territory. When this happens, it would be more beneficial for people to put the money in the mattress (his words). And when this happens, the cash flow would dry up. And that this would severely affect the entire economy. This is why Paulson guaranteed $1 return on t-bills that people already owned last week. The only way out is to provide a massive infusion of cash, and that the US Treasury is the only country in the world that has the capability to do this. This gave me pause as to the seriousness of the situation. I still trust him, much more so than the Bush gang.
Obama uses Buffet because he's apparently wicked smart. Seing as he's wicked smart, wherever he's standing right now is likely to form the start of the line at the big fat money trough about to roll out of Washington. It's worth noting that Paulson worked for Goldman Sachs before taking the TreasSec job, and will likely go back there after he quits.
Of course, maybe he's trying to help restore investor confidence by dumping mad cash into these sectors himself ahead of the bailout, which would be nice of him. I kinda doubt it though, since you don't get that hella rich by being "nice."
I don't think there's anything to know "inside" about which way Obama's going to jump. The potential downsides of opposing a bailout bill are too huge to think that Obama wouldn't back whatever comes out of Congress. Which is pretty much what Obama's been saying publicly, BTW.
The potential downside of defending American taxpayers from a $700 billion dollar swindle are too huge to think that Obama wouldn't back "whatever" comes out of Congress.
Shameful how he turns his back on all of us like that....just like a Republican would do.
"Shameful how he turns his back on all of us like that....just like a Republican would do."
My sentiments exactly. And as David Sirota stated, Obama opposes putting bankruptcy reform into the bill. Here's the quote from Obama:
"So, earlier this week, I had said to the speaker of the House, as well as Harry Reid, that issues like *bankruptcy reform*, which are very important to Democrats, is probably something that we shouldn't try to do in this piece of legislation"
Economic Populist Forum
Buffett seems like an honorable man to me. He has consistently and rightly said that the middle class pay more in taxes than the wealthy as a percentage of their income and that the system as it stands today favors the wealthy.
I have no problem with people becoming wealthy, as long as they don't try to game the system. Gaming the system is at the heart of the problem. Buffett knows a bargain when he sees it, and he's fortunate enough to be able to take advantage of it. Unlike many on Wall street who game the system. I'd much rather that he bail out Goldman than the tax payer.
Buffett tells it like it is, unlike the neo-cons who keep touting this trickle down fantasy.
I’m positive that some form of bailout is going to occur, so I don’t think Buffet is using any kind of “inside information” to determine that picking up Goldman Sachs is a good idea. Buffet is doing what he always does using the same information available to any other investor who happens to be in a good position to buy low in a down market. Is something shady going on because he happens to be an economic advisor to Obama? No, not really but I do see Sirota’s point on this. I think I would be questioning this more if Buffet was an economic advisor to McCain.
In Obama’s defense, he wasn’t against bankruptcy reform because it would “…end up forcing bailout recipients like Goldman Sachs to take on more losses.” He was against including reform in this particular piece of legislation at this time. Democrats have to be very careful here that they are not painted as obstructionists. In reality the whole financial system could come to a screeching halt very soon. If that happens, Republicans will site any attempt by Democrats to include broader financial regulation or reform as obstructionism that delayed saving our economy. Then John McCain can claim to the American people that it was Democratic (Obama's) foot dragging that caused the collapse.
Buffet is a CAPITALIST first.
It comes before anything else.
Love
Family
Country
Morality.
You are naive if you think any different.
Buffet is Democratic version of Armand Hammer.
Raw Capitalism
Like it?
Buffett got a deal NONE of us could get. He gets 10% a year at a minimum. That equates to $50 million dollars in dividends alone. And lets face facts, he is not stupid. He is well aware that most of the mortgage loans will not go bad and the market will turn around, so the value of his shares also will skyrocket. Wish I had $5 billion to invest.....
Sirota needs to take a few minutes, and review what he knows about Professor Yunus, the Nobel Laureate, and Grameen Bank. Social entrepreneurship represent the founding principles, and the bank is doing just fine, thank you. Such a review, maybe with a couple extra minutes soaking it all in, Sirota most likely will then erupt in a huge vomit pile.
What do you think this is, Sirota? On September 19, 2008, the Republican Party officially replaced their "Party of the Small Government" with "Party of Corporate Welfare". Now, just how many Americans do you know that will tolerate a Party of Corporate Welfare? These jokers are irrelevant. They will no longer be a recognized political force in our country. They're history!
Some American wants to vote for McCain? They're voting a ticket for the Party of Corporate Welfare.
See Leah McElrath Renna's Profile
Excellent points, David.
Depending on how the "bailout" is structured, the uber-rich stand to make billions of dollars - while the American taxpayers go more deeply in debt to fund their profits.
See my article on how some are already profiting financially from this situation - possibly even President Bush himself:
http://www.huffingtonpost.com/leah-mcelrath-renna/is-bush-profiting-from-th_b_129205.html
Leah
They've stated that the American people stand to "possibly" earn 8% on this deal ... this is supposed to excite us. They don't even give us the dignity of knowing over what time period will this 8% be earned ... a year, 5, 10, 30, 100?
The uber-rich stand to earn much more, which is the primary reason that Buffet is involved. Americans are supposed to be stupid; that's the only way this little scheme will work.
According to the UK paper The Times, Buffett has already made $738 million on this deal.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4821506.ece
Excellent post lets keep them all honest. Elect Democrats then weed out the bad ones, like Lieberman. He may be an Independent now but he was for Democrats before he was against them.
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