Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Commentary

Buffett: Winning With Government Support

Rolfe Winkler on Buffett’s Betrayal:

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.


Apart from that there are the hidden ways the Fed is providing liquidity to the banks, which they refused to reveal even after Bloomberg sued. The latest seems to be a way to make primary dealers (many banks are these) a conduit to pass treasury bond sales through. The Fed isn’t allowed to buy bonds directly, and this article (Chris Martenson) says the treasury sells bonds to the PDs, and the Fed buys them back within a week. (Our RBI does buy back securities but they tend to buy different securities than the ones they recently sold)

But that’s off the point. The “Betrayal”, says Winkler, is that the bailout rescued Buffett; and now he complains, in his annual letter, that Berkshire is losing out to the cheap funding available to the banks now.

He may have a point. And the book he mentions – “Buffett” by Roger Lowenstein – is well worth the read. Lowenstein portrays Buffett in an unbiased way – which seems anathema to most Buffett fans, for whom he’s either loved or loved some more. Buffett has his faults, he talks his book, he keeps silent when his money is involved (Moody’s for one, one of the rating agencies that should be taken out and shot) and he does a lot different than he talks. I’m a fan of arguments, not of arguers – so while there’s some sense in listening to some of what he says, Buffett is not quite the god he’s made out to be. In my world, there are no heroes.

Like our content? Join Capitalmind Premium.

  • Equity, fixed income, macro and personal finance research
  • Model equity and fixed-income portfolios
  • Exclusive apps, tutorials, and member community
Subscribe Now Or start with a free-trial