Thursday, November 18, 2010

A Few Words for Warren Buffett

By David Stockman

If Warren Buffett wants to tarnish his golden years emitting the gushing drivel that appears in today’s New York Times, he has undoubtedly earned the privilege. But even ex cathedra pronouncements by the Oracle of Omaha are not exempt from the test of factual accuracy. Specifically, his claim that “many of our largest industrial companies, dependent upon commercial paper financing that had disappeared, were weeks away from exhausting their cash resources” is unadulterated urban legend. Nothing remotely close to this ever happened.

The fact is, there was about $2 trillion in commercial paper outstanding on the eve of the Lehman failure. And it's true that funding of this short-term paper was highly dependent upon money market funds that suffered multi-hundred billion outflows after First Reserve broke the buck owing to its holdings of toxic Lehman paper. So it's accurate to say that the commercial paper market had seized up and that massive amounts of maturing paper had no ability to roll.

But those specific facts about the condition of the CP market do not remotely prove that the nation’s great industrial corporations were on the edge of an economic black hole or that Main Street would have experienced crippling waves of defaulted payrolls for lack of cash. Indeed, even a cursory review of the composition of the $2 trillion CP market as of September 2008 shows that the “blowup” was actually about losses on reckless bets by a few thousand money managers, not the availability of ready cash to millions of Main Street businesses.
Read the rest here.

1 comment:

  1. He should thank the government! Afterall, it was the government that made his predatory financing deals for GE and Goldman as good as money in the bank. While I think this guy is probably one of the shrudest businessmen of our era, the one thing that makes him so effective is that he is willing to vacate his principals and investment philosophy to make a buck. At one time he saw little value in the big investment banks like Goldman, but like deriviatives, he changed his tune when it was convienent to make a buck off of those things.

    His latest endeavor has been to confuse the public about taxation. What he hopes to gain from this, I haven’t a clue. But I can assure you that he has no intention of ever paying the same marginal tax rate as his secretary, much less the marginal rate of one of his executives. You can bet that if tax rates on dividends and capital gains were to rise to the level of ordinary income, he would be one of the first guys crying foul. If he truly believed in higher taxes for wealthier people, then he would propose an income tax system where the rate brackets are based on accumulated wealth.