Wednesday, August 5, 2009

Buffett Companies Got Billions in Bailout Money

Reuters' Rolfe Winkler is all over Warren Buffett, and justifiably so.

“Were it not for government bailouts, for which Buffett lobbied hard,” writes Winker, “many of his company’s stock holdings would have been wiped out."

Winker totaled up the direct benefit to companies Buffett owned stock in., where he owned sizable minority stakes, $95 billion in Troubled Asset Relief funding was doled out.

Aside from the nearly $100 billion in taxpayer aid extended to Buffett’s holdings — which include Wells Fargo, Bank of America, American Express and Goldman Sachs — his companies also benefit from $130 billion in FDIC backing for their debt.

It could be argued that Buffett's holdings in these companies were minority stakes where he was not active in management. However, Buffett was a major, major loud supporter in the media of the bailout programs. Not once disclosing how beneficial such bailouts would be to his holdings.

As I pointed out last year, Buffett was a big time fear monger who was likely to be the largest beneficiary of the bailout. Indeed that appears to be exactly the case, or very close to the case.

This is what I wrote last October:

``In my adult lifetime I don't think I've ever seen people as fearful, economically, as they are now,'' Buffett said today in an interview with Charlie Rose to be broadcast tonight on PBS. ``The economy is going to be getting worse for a while.

''Yeah, right.

How nervous is Buffett about the economy? Last week he made a $5 billion investment in Goldman Sachs. This week he made a $3 billion investment in General Electric.

As I have pointed out, he will most likely be the largest beneficiary of Paulson's $700 billion Plan.

He even put heat on Geithner when he wasn't moving fast enough.

Here's more from Winkler:

... I was struck by Buffett’s letter to Berkshire shareholders this year:

“Funders that have access to any sort of government guarantee — banks with DIC-insured deposits, large entities with commercial paper now backed by the Federal Reserve, and others who are using imaginative methods (or lobbying skills) to come under the government’s umbrella — have money costs that are minimal,” he wrote.

“Conversely, highly-rated companies, such as Berkshire, are experiencing borrowing costs that … are at record levels. Moreover, funds are abundant for the government-guaranteed borrower but often scarce for others, no matter how creditworthy they may be.”

It takes remarkable chutzpah to lobby for bailouts, make trades seeking to profit from them, and then complain that those doing so put you at a disadvantage.

Elsewhere in his letter he laments “atrocious sales practices” in the financial industry, holding up Berkshire subsidiary Clayton Homes as a model of lending rectitude.

Conveniently, he neglects to mention Wells Fargo’s toxic book of home equity loans, American Express’ exploding charge-offs, GE Capital’s awful balance sheet, Bank of America’s disastrous acquisitions of Countrywide and Merrill Lynch, and Goldman Sachs’ reckless trading practices.
I have always contended that Buffett plays with cards he doesn't show.I wrote as much also last October:

I have always suspected that Warren Buffett often has an agenda when he speaks to the public. But the man is tough to nail down on anything, given his Golly Gee public persona. He's sharp and rarely slips up...I have long suspected Buffett is operating with cards he isn't showing. He just dropped one on the floor. In my book, he is just smooth operator in the oligarchy.


  1. Wenzel,

    As much as I respect Winkler's financial analysis and as much as I appreciate and agree with his latest comments on buffett... Winkler in the end is a dishonest and disrespectful intellectual combatant. He lacks principle, a truly sound understanding of economic theory and is a believer in pragmatism. He ends up stumbling all over his own contradictions attempting to defend ridiculous concepts like legislating optimum reserve requirements for banks and insurance companies.

    I took him apart here: Social ARMageddon

    As I note in that post, Winkler is an objective value theorist and a "crypto-Marxist" as he believes in exploitation of labor and that free markets necessarily drive wages to/below subsistence-level.

  2. @Taylor

    Thanks for the tip on Winkler. I'm going to keep an eye on him.

    Though, as you point out, his Buffett ananlysis is solid.

  3. You lost all credibility with me when you accuse Buffett of fear mongering and then quote from an op-ed piece he wrote titled "Why I'm Buying U.S. Stocks now."

    If anything, Buffett was one of the few optimists out there and far from the "fear monger" you make him out to be.

    People complain about him making money but forget that he was taking on great risk... If anything, people should be thankful he provided capital to these companies at a time when they needed it.

  4. @Maury

    This is what Buffett said the week AFTER he bought stock in Goldman:

    ``The economy is going to be getting worse for a while.''


    The credit freeze is ``sucking blood'' from the U.S. economy


    Buffett was a major cheerleader for the stimulus package. He only turned positive in public after he got his chunk of Goldman and GE. I never said that his conscience wasn't bothering him. That's when he wrote his buying stocks op-ed.