Friday, May 28, 2010

What's Warren Buffett Afraid Of?

Writes Fortune's Carol Loomis, a long-time Warren Buffet friend:
When Warren Buffett testifies before the Financial Crisis Inquiry Commission next Wednesday, it will be because he was subpoenaed. If you don't know how a subpoena works, this one begins with capital letters, "YOU ARE HEREBY COMMANDED to appear and give testimony."
Buffett had turned down earlier requests by the FCIC to appear voluntarily.

With flawless timing, Lew Rockwell runs an important column that was written by Murray Rothbard on the very topic of coerced testimony, here.

With this as background, so we properly understand the coercion involved, it is very curious that Buffett turned down the first offers to testify. To my knowledge this is the first time he has done so.

Could he be afraid that the questions may head in a direction that he doesn't want them to go in? For example, questions like what was the substance of the conversations he had with then-Treasury Secretary Henry Paulson during the height of the first phase of the financial crisis? Did Paulson give Buffett any ideas about possible Fed or Treasury activities, before Buffett made his decision to buy into Goldman Sachs? Why did Buffett think, as reported by Andrew Ross Sorkin in his book Too Big To Fail, that Paulson was talking to him in code and that Paulson did not want him to come to the rescue of Lehman Brothers?

I can't imagine Buffett wanting the questions to go in these directions.

Thus, he must have been quite pleased when the private interview conducted by the investigators went in another boring, unfruitfil direction, and then bizarre fashion. Here's Loomis again:
The subpoena and the accompanying May 25 letter made it clear that the topics Buffett was originally asked to speak about had narrowed. The announced subject of the June 2 hearing is "Credibility of Credit Ratings, the Investment Decisions Made Based on Those Ratings, and the Financial Crisis."

The connection between Buffett and credit ratings is Berkshire's longtime ownership of stock in that industry's biggest independent company, Moody's. Sitting at the witness table with Buffett will be Moody's CEO, Raymond McDaniel.

The only other scheduled witnesses that day are five additional people from Moody's.

The very last part of the June 2 hearings title is echoed in the letter to Buffett, in which he is told he will be asked to give his views on "the most significant causes of the financial crisis."

Indeed, yesterday three men from the commission, including Cohen, came to Omaha and did the "private interview" with Buffett. They began by asking him about credit rating companies and then verged into all of the other subjects mentioned in the first letter to him.

Buffett told this writer -- a longtime friend of his and a Berkshire shareholder -- that he liked the men and enjoyed talking to them. Two (not including Cohen) brought books for him to autograph and also indicated they might come to next year's Berkshire annual meeting.
This entire leak by Buffett about his upcoming testimony, through this Fortune article,  is quite interesting in and of itself. Remember, Buffett is very media savvy. He used to hang, afterall, with the late Kay Graham. This story is out for a reason.

He has to be nervous about something and the leak looks to me like an attempt to nudge the questioning in a certain direction, and also perhaps to clue others in that he is not voluntarily testifying against them.

In the article, Loomis at one point gives her opinion, which I'm sure is also Buffett's opinion, but it sure sounds less threatening coming from Loomis and it still gets the point across:
Provided that the commission members ask intelligent questions and don't try to grandstand, this writer predicts that Buffett will enjoy the hearings as well
I wonder if Buffett would consider the questions I have asked above as "grandstanding." I think if the FCIC truly wants to be thorough about its investigation it must ask them.

But I'm not holding my breath that they are going to be asked.

What's up, for example, with FCIC investigators acting like a bunch of groupies and asking for autographs from a witness that had to be subpoena?  Sounds to me like Buffett has them right where he wants them, in deep brain freeze, with little chance of any questions going in the direction I propose.

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