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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.

  • Anonymous says:

    >hi deepak
    everyone has his flaws ..most ..atleast the sane ones – admire buffett for his integrity and for being a good investor. then there is a group which uses his name to gain publicity. this group tends to fall in two camps – the worshipers who can see no fault and anti-worshipers who get publicity by tearing him down.
    is it not interesting that there are other superinvestors out there ..but no one gets this level of scrutiny ?

    the writer of the article which you have referenced has conveniently forgetten that buffett has donated almost 99% of his networth to charity already ..now that is greedy isnt it ??

  • Anonymous says:

    >Now i really understand u completely, u just look out for this kind of sensational bullshit which are spwed out of the internet.

    I really thought u were a smart guy.

  • Deepak Shenoy says:

    >anon1: His charity is worth emulating, no doubt – and so is Gates'. One thing though: He has only donated $6 bn or so ($1.5 bn per year) and is still a large owner (the $37 billion transfer will happen over about 20 years) I don't consider that his charity work should sully emotions:he has the platform to speak up against the bailouts, against the rating agencies, against the "all-in" approach, and he doesn't.

    My problem is eulogising him – there's no need to – and taking everything he says as a golden truth. I'm a plain skeptic.

  • Anonymous says:

    >Deepak

    So we are saying Buffet is not as smart as the world thinks he is.

    So what does Rolfe Winkler suggest as a investment style? What is his investing philosphy? what stocks is he recommending ? What is his track record in the last 10 years? What returns has he generated?

    It is easy to point out mistakes in Buffet and i m sure there are many. what is important is what is the alternative that u r offering after u pointed out those mistakes. Does Rolfe have a better answer?

    Like I said before Deepak u r wasting u r time in making predictions, reading guys like Rolfe or the other guy that u had posted on Goldman.

  • Deepak Shenoy says:

    >ANon: GIve me a break. Winkler's making a point, not stepping into Buffett's shoes. So let's attack the argument, not the arguer, shall we?

    I might be doing whatever I'm doing, but you sure are spending a lot of time telling me I'm wasting my time.

  • Anonymous says:

    >Hi deepak
    i am not the anon making the personal remarks ..i am anon1.

    it is unfortunate that people have to defend buffett as some of the readers are doing as if one is commiting blasphemy by even posting an article critical of buffett.

    i admire buffett and think the article is silly, but what is sillier is that people have to attack you for that …

    btw ..buffett has committed almost 90% of his networth and asked the gates foundation to sell a fixed % everyyear. his kids and other family will not get more than 2-3% of his money. the rest will go to society.

    inspite of the above, i find it strange that people call him greedy ..what do people expect a smart businessman to do ? roll over ?

  • Deepak Shenoy says:

    >Anon (that didn't make the personal comments 🙂 ),

    Don't expect him to roll over, but please don't look at this in the context of "he's donating it anyway". He is going to own a considerable amount of it till he dies – after that the point is moot anyhow, what difference does it make if his children get it or not. Power and money corrupt when you're alive – just because he doesn't want to leave his legacy to his children doesn't mean he can't be bad when he controls it. You think Ambani would not have tried to work the system if he had no children?

    Giving your money to your children or not is a personal choice; I admire that he gives to charity. Yet, I find his treatment of his children peculiar, like not giving his daughter a 30K loan to refurbish her kitchen, even though she said she'd pay current interest rates! (If that's greatness, I'd rather not be great.)

    Now after that: The "betrayal" of buffett is this – he first benefits from the bailout, from the cheap funds available to the banks and companies he owns. Then, as an insurer, he must compete with these very banks, so he complains that they get low cost money. Fair?

    And then moody's – Buffett complains about about how the system was screwed up, but doesn't utter a word against the rating agencies, simply because he owns a chunk. Fair?

    The article has a valid point – that Buffett benefited from the bailout and is now complaining of its after-effects.

  • Padmanabhan says:

    >ll, Govt handed out taxpayer's money to Buffet. who is the one to be blamed here? Govt or Buffet? If Govt is willing to give a billion dollars, who on earth would refuse it and why should they? If there is anyone to be blamed here, it is THE GOVT, and may be citizens for electing the wrong people. Not Buffet.

  • Technovestor says:

    >I used to idolise Buffett earlier and am still a big fan of his investing style – but realise that he is also just another human like you and me and has his plusses and minusses. There is lots to learn from his style, and lots to ignore as well. Make your own pick.

  • Sanjeet says:

    >Buffet is a guy who knows companies inside out. For many companies he is like non playing captain of the game, who drives everything without being there on the field facing each ball. All these are prominent sign of his intellect and smartness.
    He knows exactly whats going on in economy and how he can take benefit of it for the part of economy he owns.
    Stock (or stake) holding is a game that starts with all those nice words we here on CNBC India.. Fundamental, Technicals, Management, Guidance, Project Pipeline and what not.. but once you start betting high.. start owning in bulk, you put every attempt that your move wins. What Buffet is doing is not at all an exception.
    There are hardly any famous people who have remained integrated throughout.. Buffet, Narayanmurty, Ambanis, Bachchans.. everyone failed

  • Kamal says:

    >Hi Deepak,
    Buffet is a businessman, and in business its about rules and laws rather than ethics.
    In the book "The Barbarians at the Gate", Buffet asks folks to buy RJR Nabisco as the cigarette maker is a good franchise, remember those were the days when everyone was up against the tobacco industry. And when asked why he wouldnt buy RJR shares, that he had once owned substantial amount of RJR shares earlier, he answers that he has enough money and wouldnt want to get his name muddied. So thats it, he is just another guy who may follow the rules of the game, but then the game has never been clean. For Buffet the business has got to be a good franchise and the same for Bill Gates too.

  • maurya says:

    >I am very disappointed that he still owns GE which is a big subprime. It is a worst stock.