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Buffet: Wolf in Sheep's Clothing

Barry Ritholtz is really pissed off.

Due to an unexpected outbreak of rationality (and perhaps embarrassment), the Treasury department has rejected requests of Goldman Sachs and Berkshire Hathaway to purchase Tax Credits from Fannie Mae.

This paper transaction would have provided precisely zero value to the taxpayers, and allowed these firms to add to the piles of bailout monies already received by avoiding billions of dollars in taxes otherwise legally owed. It would have been a license to steal.

The sheer arrogance, the colossal gall involved boggles the mind.

And while we expect this sort of behavior from the Vampire Squid — they take pride at Goldman in not just being whores, but in being the highest paid callgirls in town — it is stunning to see such behavior from the usually politically astute Oracle Tentacles of Omaha. For Warren Buffett’s Berkshire Hathaway to team up with Goldman Sachs (which he now owns a healthy chunk of) is a bit of a revelation: We have been spun by his genteel manner, his aw shucks down-home-isms, his off Wall Street, less bloodthirsty approach to investing, into somehow believing he was different.

We have been duped.

We should not have been. Buffett has been the biggest shareholder in Moody’s — a collection of filthy whores and pederasts who were one of the main contributors to the economic collapse — should have raised serious questions as to his judgment in our minds. That he sat by silently as they did their worst, sodomizing the nations credit system for fun and profit was a powerful indictment of Buffett as someone far different than his public persona. In retrospect, as Moody’s was helping to destroy America’s financial system, his merely spouting off aphorisms about about Financial WMDs now looks too cute by half.

Those of you who used to respect Warren Buffett might consider moving him off your increasingly short list of participants in the marketplace who behave ethically. This crude attempt to steal billions — coming on the heels of the bullshit about “Investing in America” by buying Railroads — is a shock to me; perhaps that is a testament to my naivete.

Perhaps the Oracle of Omaha has been infected by a new flu variant, the H1N1 GS mutation. It is usually non fatal to the host, but destroys its reputation . . .

This is probably the toughest stance I’ve seen Barry taking; but it is disgusting that people are taking the system for a royal ride. Goldman is considered scum anyhow, so their doing this isn’t all that surprising. But Buffet? He does well with straight talk, but the walk isn’t quite that straight, it seems.

Barry also references a Rolfe Winkler post I’d spoken about and got some tough comments on. It’s becoming more evident now that Buffett, for all his talk, isn’t quite the saint he’s made out to be.

Berkshire made a healthy profit this quarter, though that’s a mark-to-market game; the real businesses seem to show slack and he’s trying to keep it lean there.

If the anger against these people trying to game the system doesn’t blow up, we’ll see the Buffetts and Goldmans make even more money at the cost of a lonely taxpayer. But the anger’s just starting to show – probably a year more of this craziness will be needed before someone gets really ticked off. It’s starting to appear slowly – Elizabeth Warren, Chairman of the Congressional Oversight Panel, is appalled that “financial institutions could think that they could take taxpayer money and then turn around and act like it’s business as usual. I don’t understand how they can’t see that the world has changed in a fundamental way, that it is not business as usual when you take taxpayer dollars.“.

It’s disconcerting that the lessons of this crisis are all screwed up, and that people are still taking advantage of the now explicit taxpayer backstop. We’re learning to lie [let’s not mark to market], to fabricate positive news out of the most negative [US Unemployment at 17%? Dress it up as better than something else] and to cow down to threats that banking failures will crush everyone. If there ever was a time that thieves can look back and remember fondly, this is it.

  • Anonymous says:

    >Public anger at likes of GS, JPM is getting stronger by the day. GS CEO claiming that his company is doing God's work on this Earth. (robbing nest eggs of retired and prudent savers). I will not be surprised if the Galleon probe expands to higher orbit with GS, JPM etc. involved to the core. Indian Investors also should be careful with these crooks who have clout in the Indian Financial Landscape. As starters IIMs should ban entry to these crooks inside their Campus.
    MK

  • Siddharth says:

    >Good to see articles coming up.
    Thanks.

    Hye, many many happy returns of the day to you deepak.
    Have happiest birthday.

    Siddharth.

  • Anonymous says:

    >Every sensible person knows that there are no angels/saints in the business world (or any real world) for that matter. It is just how you dress up your shortcomings/deficiencies. It is how the quid-pro-quo looks (or is presented) that matters? Offering whores for a business deal is strict no-no but flying someone on a chartered flight to a golf resort is fine (although the latter costs many times more). Some do better marketing, some can't. Buffett has been a master marketeer of the Buffett brand. That's all. He ain't saint and it is not his mistake. It is the mistake of fools like us who look for saints and perfections in human beings that are designed to have flaws 🙂

  • Nilesh says:

    >good artical. also read your Rolfe Winkler post and comment on that.

    people think that value investing is philosophy OWNED by him. he is merely a follower. its initially propagted by Graham and then by buffet. nobody OWNS it.

    people thinking "value investing it gr8, buffet follows it, so he is gr8" is pure stupid.

    PS: many many happy returns of the day.

  • Anonymous says:

    >You still seem to be going strong with the tabloid stuff.

    To quote Mr Barry Ritholz in his own comments

    "I wanted to work the phrase cocksuckers into this post, but I really couldn’t find the appropriate paragraph . . ."

    Not the kind of language that you would expect.

    Deepak u r pet peeves are becoming predictable – Buffet, Goldman Sachs, ICICI Bank ….

  • Karthik says:

    >If the system is stupid, who's fault is it? Lets admit it, the Govt. is dumb, the GS folks are smart, Buffett is super smart.

    Fannie Mae was a bad idea in the first place

    @Nilesh: People actually think "Buffett is gr8. he follows value investing, so value investing is gr8"

  • Anonymous says:

    >according to barry, saint warren should never buy an asset worth less than its value because in doing so he is 'screwing' someone…another investor in this case.
    how does the tax payer get screwed in this case ..well mr barry is short on those details.

    the tax credit will expire worthless..the tax payer gets nothing anyway. by selling the tax credit , the tax payer at least gets pennies on the dollar.

    there is a big difference between GS buying it and buffett buying it. buffett never got any bailout money.

    wait ..he benefited from the government bailing out these financial companies ..ok so all the people who took the risk of buying these companies in dec-mar 2009 are crooks too.

    i could go on and on ..frankly barry is a moron who is using names to get publicity without a rational argument.

  • Deepak Shenoy says:

    >Can't believe that people will defend Buffett in the face of such data. Indeed a religion – or more like blind faith.

    A taxpayer is all of us – and by manipulating the system, he tries to manipulate us. That may be acceptable to some of those that follow Buffett's religion, but it's disgusting to the rest of us.

    The Tax Credit cannot be for sale in an entity that's been bailed out by the govt. By "selling" for pennies the govt loses valuable tax revenue – and at full value GS/Buffett won't buy it. It's just terrible that GS/BRK think we are blind to this.

    Buffett DID get bailout money. And people who took the "RISK" of buying it bought stock, not a taxpayer guarantee. I don't grudge Buffett his stock purchases, that's either a wise or a stupid decision, time will tell.

    But it's only useful having an argument about buffett if the other party is willing to listen to negatives. It's surprising how defensive the Buffett camp is!

  • Soham Das says:

    >People forget, very easily, conveniently and speedily, that making money in capital markets is a negative sum game. And anyone to come ahead of it, in the "long run" is surely, a die hard competitive guy or very shrewd or possibly both.

    So, on the part of general public, to exalt Warren Buffett to a status of demi-god, just because he is called the Saint of Omaha, is plain idiotic and short sighted.
    Unfortunately, a man, I truly admire George Soros, has equivalent philanthropic interest but is known to use his wealth for his own motives,and makes no bones about it. In many ways, there is no difference between WB and GS.Yet GS is hated,(which I am perfectly okay with) and WB is loved.

    But public, the aam junta doesnt know this, and this public perception of WB, serving as your pet peeve doesnt exactly look good on you.
    To be frank, I would pray, that more and more people get suckered into the aphorisms of "investing on the back of an envelope" and such aphorisms.
    I like that.
    After all, if majority is following it, its got to be wrong.
    And one man's poison, is another man's nectar.

    Soham

  • Anonymous says:

    >Nobody is defending Buffet here.

    What is Fannie Mae doing selling tax credits in the first place? Isnt it owned by the government. Buffet or whoever hasnt bought it. They requested from the treasury and it got rejected. So whats the big deal. Its like any other transaction that you would do in a free market.

    Dont we have companies who pollute can buy carbon credits from the marketplace. Thats the structure of the market. We dont apply moralistic views as to how can the polluters get away with it.

    The issue is not about whether buffet is wrong or right and i dont think he is saint. Its a free market and if u r folling the rules of the game then its ok. Its not their fault that the rules have been defined wrongly.

  • Deepak Shenoy says:

    >Of course they apply moralistic views like how can polluters get away with it – which is why the carbon credit market hasn't gone nuts. It's a moralistic view and the carbon credit system still provides incentive to continue pollution.

    Well, if we both agree that Buffett and GS are both characters who'll manipulate the system even unethically – as long as it's legal – to make some money, we're on the same page. Nothing wrong with being that of course – if you can live with the image, like GS does. It's just that Buffett doesn't quite get painted by the same brush. The outrage is building – let's see if it gets big enough to take them all out.

  • Loony says:

    >Now now.. They are doing God's work for God's sake. oh no wait…

  • Karthik says:

    >@Deepak: I still don't understand how is this unethical?

  • Deepak Shenoy says:

    >Karthik: Let me place on record two points:
    1) Buffett calls for congress not to cut his taxes, saying the rich pay too litle tax.

    2) Buffett-owned Berkshire, which can be easily qualified as "rich", tries to buy tax credits from a government company, thus reducing its tax outflow.

    Now it's hypocritical to argue for both – though people have said it's the rational thing to do. Still, it's immoral to say one thing and do another, and while there may be a difference between hypocritical/immoral/unethical I don't see it in this context. Your mileage may vary; I'm unconvinced that this can be rationalized away that easily.

    Goldman isn't unethical in this context – they will continue to argue for lower taxes regardless. But it's unethical in other spheres; from structuring loans as derivatives (to sidestep bankruptcy laws) to pushing CDOs while they were themselves actively shorting them.

    Being unethical isn't bad for the finance industry, until that one day when you lose the faith of enough people that they push you down. But most survive, because there usually isn't enough outrage.

  • Anonymous says:

    >deepak
    you may not publish this ..but all the same

    the link you give shows buffett arguing for more taxes and not less.

    there is a difference between buffett the businessman and buffett the individual.

    buffett the individual has donated 99% of his wealth and argues for higher personal taxes.

    buffett the businessman works for his shareholders and looks at various ways to benefit them ..buying tax credit is perfectly ethical way of doing it.

    if you read his annual report – he has never argued for lesser corporate taxes.

    btw – this dude barry ..how much has he donated to the society ? 90% of his wealth ?

    yes, it is easy to point fingers in life even if there is flimsy evidence for it

    attacking or praising buffett is now a cottage industry. unfortunately you are taking part in it.

  • Deepak Shenoy says:

    >Anon: I'll publish anything except personal attacks.

    There's no personal versus business here – if he wanted to pay higher taxes, he could have paid out a dividend from BRK (which wasn't using that cash anyway) and paid personal taxes on it. It can be argued that it's unnecessary as a company (and he said so too) for BRK to hold all that cash for all those years .

    This dude Barry – I think we need to stop getting ad-hominem here, plus you don't know if he's donated more of his wealth, or plans to. Remember buffett only started donating a few years back, and even now has less than 20% donated – less than 10 i think but I'm not sure. Same with Gates. That they've donated personal wealth after they die is not quite as admirable as those who donate it when they're alive. (There's an old indian story of a half-golden mongoose – very pertinent)

    My attack on buffett is not against what he is, but what the goody goody image of him is. He has excellent things to say – very inspiring too – and like Rich Dad, Poor Dad, it's useful to read what he says; it's not useful to admire him for it, for he does things very differently.

    I am happy to disagree – and

  • Anonymous says:

    >Hey deepak

    i was just about to post something like the above poster and add that since atleast i am not a US taxpayer so i don't care what buffett preaches.

    Then i search the net about the point of tax credit, well the your point is accurate. Buffett is doing double talk plain and simple.

    Plus i found out that since buffett didn't wanted to harm is reputation he didn't has tobacco stocks with him he said.

    It is other matter that i have zero interest in this barry guy but what the hell the point of buffett is right.