

Warren Buffett: Pretty Good for Government Work - jakarta
http://www.nytimes.com/2010/11/17/opinion/17buffett.html?_r=1

======
kqr2
In the interest of full disclosure, Warren Buffett should have mentioned that
he will probably make about $3.5 billion off a $5 billion investment (70%
return) in Goldman Sachs.

Goldman Sachs in turn received $13 billion via the AIG bailout.

[http://www.bnet.com/blog/financial-business/how-warren-
buffe...](http://www.bnet.com/blog/financial-business/how-warren-
buffett-8217s-gamble-on-goldman-sachs-paid-off-big/8326)

[http://articles.latimes.com/2009/mar/21/business/fi-aig-
gold...](http://articles.latimes.com/2009/mar/21/business/fi-aig-goldman21)

~~~
jeromec
It's probably more accurate to say charities will make it.

 _Buffett has pledged to gradually give 85% of his Berkshire stock to five
foundations. A dominant five-sixths of the shares will go to the world's
largest philanthropic organization, the $30 billion Bill & Melinda Gates
Foundation, whose principals are close friends of Buffett's (a connection that
began in 1991, when a mutual friend introduced Buffett and Bill Gates)._

[http://money.cnn.com/2006/06/25/magazines/fortune/charity1.f...](http://money.cnn.com/2006/06/25/magazines/fortune/charity1.fortune/)

~~~
borism
that's after his death, and even then it's just a way to avoid inheritance
tax.

~~~
gyardley
The estate tax is a disgrace, but this is overly cynical. Buffett is giving
away far more than he'd pay in taxes, even at the 55% estate tax rate.

~~~
jbooth
The estate tax isn't a disgrace, it only even kicks in on estates greater than
a few million. I'll repeat that -- if your estate is less than a few million,
the estate tax doesn't affect you. If your estate is more than a few million,
the first few are still exempt.

Used to be people respected earning your own living, now all people seem to
respect is compound interest.

~~~
portman
Here's something I only recently became aware of that may change your opinion
on the estate tax.

I have three children, ages 3, 2 and six months. If I were to die tomorrow,
the cost of raising those kids and sending them to college would be something
like $3.5M. So, I have a life insurance policy, as any responsible parent
does.

But under the current law, _the proceeds of my life insurance policy are
subject to the estate tax_.

Sure, if you're paining a hypothetical about a 24-year-old Ivy League graduate
who just received news that his parents have passed and that he has inherited
a $3M estate, it doesn't sound _too_ bad if part of that inheritance is taxed.

But now imagine a toddler who just lost two parents and needs to be fed,
clothed, sheltered and educated for the next 20 years... it's different.

~~~
jbooth
Ok, so there's a case that's pretty important and probably deserves an
exemption under the law. Or, maybe not, if you think 3.5 million is enough,
you already have all the exemption you need. I could see something pushing it
a little higher in cases of early death and a life insurance payout.

That makes sense.

You know what doesn't make sense, though? Complaining about a "death tax" on
the one hand while complaining about the budget deficit at the same time, yet
maintaining that you're the political party of hard work, bootstrapping, blah
blah. If you care about the latter two, don't spend your time going to the mat
for Paris Hilton. If you consult some charts about income distribution in this
country, you can conclude that the _vaaaaaaaaast_ majority of the revenue
collected under this tax comes from very large estates where the children
would be set for life with 10% of it, and they're doing very very well with
3.5Mil + 45% of the rest.

Exceptional cases may be worthy of exceptions under the law, but that doesn't
change whether the law makes sense in the general case.

~~~
WalterBright
Simultaneously complaining about taxes and the deficit does does make sense if
you consider cutting spending.

~~~
jbooth
Not given the size of the budget deficit, and especially not if you're only
concerned about taxes that exclusively affect the very very wealthy.

------
watchandwait
Warren Buffett's corrupt Moody's credit rating business is at the heart of the
financial crisis. Funny he didn't mention that.

[http://voices.washingtonpost.com/economy-
watch/2010/05/credi...](http://voices.washingtonpost.com/economy-
watch/2010/05/credit_rating_agencies_the_rea.html)

~~~
gg25
Nice straw man attack. How does that have anything to do with his argument
that Uncle Sam helped calm one of the biggest economic crises in history?

Also implying that Moody is corrupt is asinine. Yes, they made mistakes (what
credit agency didn't during the housing bubble?), but they didn't break any
laws.

~~~
zoomzoom
Would hardly call it asinine. There is a difference between illegality and
corruption, and many would argue that us lawmakers have legalized bribery in
the financial sector. You may disagree, but that doesn't make the viewpoint
ignorant.

~~~
pwhelan
The implication, however, is that they were doing something shady that the
rest of the credit rating agencies were not -- which is incorrect.

------
holdenc
Perhaps the government did avert a short-term disaster. But it's unremarkable
that they distributed billions to companies who effectively held taxpayers
hostage, threatening "if we go down, you go down with us." There was no way to
not give out money without incurring intolerable short-term pain.

I'll write a thank you letter to the government when the future of our nation
isn't tied to the bad judgement of a few irresponsible companies.

~~~
pedrocr
> There was no way to not give out money without incurring intolerable short-
> term pain.

Sure there was:

[http://www.nytimes.com/2008/09/23/business/worldbusiness/23k...](http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html)

The Swedes actually solved this by nationalizing all the failing banks, wiping
out the equity holders, restructuring and privatizing again. It ended up not
costing much. In the US a bunch of bankers got huge bailout funded bonuses and
the banks are far from solvent even now.

~~~
marcamillion
`Sweden spent 4 percent of its gross domestic product, or 65 billion kronor,
the equivalent of $11.7 billion at the time, or $18.3 billion in today’s
dollars, to rescue ailing banks. `

Hrmm...so let's see...4% of $14.14T = $565B.

TARP alone was 700B - i.e. approximately 5% and that seems to not have been
enough - because the Fed spent an additional $1.4T.

How much more money did you want the US to spend? Obviously if it was as
simple as nationalizing every single bank, they would have done that. But the
US banking industry is much more complicated than any other country - much
less Sweden's (with all due respect).

To whit, so far this year the FDIC has 'nationalized' more banks than they did
2009.

<https://www.fdic.gov/bank/individual/failed/banklist.html>

So they are kinda doing what you suggest, but just to show you how difficult
such a task really is, they are still winding them down almost 2 years later.

~~~
pedrocr
>How much more money did you want the US to spend? Obviously if it was as
simple as nationalizing every single bank, they would have done that. But the
US banking industry is much more complicated than any other country - much
less Sweden's (with all due respect).

If the banks had not been bailed out by TARP they could have been nationalized
cheaply, restructured and relaunched. The equity holders would have been wiped
out, as they should have been since their banks were broke, and the employees
at these banks would not have extracted even more obscene amounts of money. By
now you'd have functional banks driving the economy again. The amount of money
isn't the issue here, it's the fact that it was used to prop up a failed
system instead of used to restructure it.

>To whit, so far this year the FDIC has 'nationalized' more banks than they
did 2009.

All of these banks are the small insignificant ones. None of the big ones have
been restructured and most are still technically insolvent.

~~~
marcamillion
TARP was a form of nationalization. It wasn't complete nationalization in
EVERY case, but the government did buy bank common & preferred stocks. In
AIG's case, they bought 80% of all outstanding stock - essentially
nationalizing them.

Everybody else, it was pittances - a few % here and there.

So that goes to show the amount of money needed. If they spent so much money
and only got a few % of each bank, how much more money would be needed to
purchase the entire banks altogether.

Not all of the banks the FDIC has nationalized are insignificant ones. It
started with IndyMac which is no small bank.

The notion that the banks are still technically insolvent - says who? I think
the markets are the best indicator as to the health of the banks. As far as I
can see, their bond spreads over Treasuries have fallen significantly in the
last few months and their stocks have been rallying.

So are you telling me that the markets (who are extremely sophisticated and
thoroughly understand the banking industry) are being fooled by these banks?

I hardly think so.

BOA is up from it's low of $3, to $11.70. Citigroup (the most damaged of them
all) is up to $4.17 from a low of $1.xx - the gov't owns the biggest stake in
Citi than most other banks.

Yes, their prices aren't as high as it used to be, but these things take time.

~~~
pedrocr
>So that goes to show the amount of money needed. If they spent so much money
and only got a few % of each bank, how much more money would be needed to
purchase the entire banks altogether.

The banks were propped up by TARP and so their market value remained high.
Without it they were probably all insolvent and so the cost of owning them
would be basically zero. Otherwise the market would have been able to finance
the banks.

TARP was designed to feed money into banks in a very cheap way, the size of
the wealth transfer from the taxpayer to Wall Street is staggering. Buffet
himself got much better conditions than the Federal Government.

>The notion that the banks are still technically insolvent - says who? I think
the markets are the best indicator as to the health of the banks. As far as I
can see, their bond spreads over Treasuries have fallen significantly in the
last few months and their stocks have been rallying.

There is now a quite explicit assumption that the federal government won't let
the banks fail. With that and the Fed helping there's plenty of reason to
think banks will continue to make money. That doesn't mean the crap on (and
off) their balance sheets has stopped being crap.

>So are you telling me that the markets (who are extremely sophisticated and
thoroughly understand the banking industry) are being fooled by these banks?

I'm saying the markets are now useless to value the banks because the value
being judged includes the federal government as a crutch. There is no market
pricing for the value of the banks on their own.

------
jswinghammer
When the next round of problems start up this is going to look pretty funny.
There is another wave of credit problems coming and the banks are vulnerable
to all of the same downside risk they were before all this started.

In 1931 the establishment thought they solved the problem and that things
would get better soon. The collapse of the Austrian bank Creditanstalt proved
them wrong and started a new series of problems.

------
stretchwithme
What is the great disaster that was supposed to have befallen us had Secretary
of Treasury Hank Paulson and former CEO of Goldman Sachs not gotten his $700
million slush fund?

Certainly many of those placing their bets on the collapse of housing bubble
would not have gotten paid by AIG, but how does that cause the rest of the
economy to collapse exactly?

Yes, your investments would certainly have experienced losses as the companies
doing all the stupid things dropped in value once their folly was fully
revealed. But isn't dumb behavior and blind faith in casinos supposed to be
punished?

Instead of that righteous outcome, the costs are no being dumped upon millions
who had nothing to do with all of the stupidity. And the reckoning has merely
been postponed and perhaps will grow even larger now that they have been
encouraged to continue taking foolish risks.

Personally, I think Warren Buffett knows better.

~~~
rmah
_"What is the great disaster that was supposed to have befallen us..."_

Simply put, the thesis is that the entire world economy would have collapsed.
It would have started with most of the investment banks being unable to do
business and shutting their doors. This would have caused a chain reaction
other parts of the financial system since the big money-center banks provide
much of the overnight lending liquidity for smaller banks (and each other).
Banks would start failing at an incredible rate.

As the banks started to fail, the equities, bond and commodities markets would
have collapsed. All these markets rely on short term lending, not just for
leverage, but to underwrite transactions. Even if this were not the case, much
trading volume would have dried up. This combined would have led to a crash in
those markets.

Finally, and most importantly, most businesses rely on lines of credit and
other short term debt facilities to finance day to day operations. They use
this to smooth out the cash flow when buying raw materials/inventory,
purchasing assets and meeting payroll. These would have all been effectively
frozen. You would have either seen paychecks becoming worthless or massive
layoffs within a few weeks to a few months of the initial bank collapses. By
massive, I mean a spike of an _additional_ 10% to 20% unemployment within a
few weeks or months.

I won't go into the effect all this would have on currencies and international
trade.

All told, it would probably have plunged the entire world into a depression
that would have rivaled or exceeded the Great Depression of the 1930's. It
likely would have been worse because of the interconnectedness of the world's
financial and commercial systems today.

~~~
yummyfajitas
It's very easy to make up unfalsifiable scary stories to justify policies you
like.

~~~
rmah
That I _like_?!?!? I hated the TARP bailout. The problems were caused by
insanely lax government oversight, poor institutional risk assessment and a
healthy dose of outright fraud. IMO people need to go to jail.

That said, the government had no real choice. I'm no financial system expert,
but used to work in finance and even I can see that something was needed or
else the system would collapse. Is it possible that you're letting your
distaste of the financial system and players involved color your judgment?

The choice we faced was either cut off the leg or the patient dies when the
gangrene spreads. No one _likes_ cutting off the leg, but if the alternative
is that you die, I think the choice is obvious.

~~~
yummyfajitas
_Is it possible that you're letting your distaste of the financial system and
players involved color your judgment?_

It's unlikely, since I don't have any distaste for finance. In most threads
I'm the solitary defender of the financial sector.

As I said, it's easy to make up a scary story of doom. The scary story assumes
that everyone will try to continue doing everything they previously did before
the banks collapsed, and then give up rather than do things differently. Or
perhaps the assumption is that the way things are now is the only way things
could be. Either way, I'm unconvinced.

~~~
d2viant
I wouldn't say he's scaremongering. There is historical precedent for what
happens when liquidity in the marketplace dries up or how people behave when
banks tighten their lending or go out of business.

------
bill186
I'd rather hear from Uncle Sam's grand children than his nephew.

Dear Sammy Children have to trust that their elders carry the wisdom of thier
age and thoughtfully apply it when faced with trying circumstances. We trust
that you will do the right thing and protect and safeguard our future. For
each generation to leave a legacy that enables the next generation to continue
to have a chance prosper and pursue its dreams. During the financial turmoil
culminating in the financial crisis of 2008 you broke that trust. You sold out
future generations to save a priviliedged few. You lied to the people to hide
your failures and to protect your own fortunes. In order to avoid facing
difficult problems and dealing up front with the people of that time, you
chose to steal from future generations so you could continue with the graft,
greed and lies upon which you and the favored select few built your empires.
All the while just shifting the burden of your selfishness to us, your
children. Well thank you for bankrupting our future! Now we are now saddled
with debt that can not possibly be repaid. We have have limited hope of
growing and developing ourselves and providing for our families. There is
little opportunity for building our own dreams because we are overwhelmed with
tax burdens, failed governement services, scarce and expensive resources, as
well as world turmoil and general social unrest. Our currency, tattered and
beaten, has been left a former shell of what it once was worth. People have
largely given up because there's little incentive to build something of your
own when most of the fruits of one's labor must go back to you Sammy to pay
for past excesses or to help the masses of less fortunate that now exist b/c
jobs and oppotunites are few and far between. So I hope you, your nephew
Warren and the other priviledged few got to party it up while it was good
because if there is a god you'll all rot in hell for your shamelessness.

Signed your destitute and dejected grand child

------
ungerik
I think you can't expect unbiased information regarding to money from one of
the 3 richest men in world.

~~~
Travis
Do you know much about Warren Buffett? He is one of the three richest men in
the world. He has created an immense amount of value for himself, but also for
other people, due to his value based investment strategies. He's not a Carl
Icahn corporate raider -- he's a businessman who looks for value and ways to
increase value. That's a tremendously valuable individual to society. As a
fellow entrepreneur, I have read and found inspiration in his philosophies and
accomplishments. And that was before he went and promised 85% of his net worth
to charities (Bill and Melinda Gates foundation, I believe) upon his death.
Near as I can tell, that's over $30 billion dollars of wealth that he has
created that he is now giving away.

I agree that you cannot expect unbiased information from _anybody_ these days.
But it's not fair to single out Mr. Buffett, as he certainly isn't the type of
rich man you want to paint with that brush.

------
joelmichael
I agree with Warren. The government handled the crisis very well, with the
possible exception of allowing Lehman Brothers to fail. It's pretty
remarkable, really, and it's unfortunate populist cynicism opposed the saving
of the economy.

------
davidj
The real story here is that government was holding up billions in payments to
Warren Buffett from Goldman Sachs as blackmail until he caved in to write an
article favoring the governments action. Warren Buffett is the modern day Hank
Rearden, where in Atlas Shrugged Hank Rearden assets were stolen by the
government and eventually used to blackmail him to work with the government.

------
greengarstudios
Actually, the root cause of the financial crisis was the Federal Reserve's
interest rate manipulation. This distortion creates moral hazard, encourages
malinvestment, and causes companies to make bad decisions.

<http://www.campaignforliberty.com/article.php?view=650>

------
Towle_
Long live the Austrian School. Nothing else makes sense.

~~~
borism
Right! Everything else uses math, and math is HARD!
[http://en.wikipedia.org/wiki/Austrian_School#Criticism_of_th...](http://en.wikipedia.org/wiki/Austrian_School#Criticism_of_the_Austrian_School)

 _Critics have concluded that modern Austrian economics generally lacks
scientific rigor,[10][12] which forms the basis of the most prominent
criticism of the school. Austrian theories are not formulated in formal
mathematical form,[108] but by using mainly verbal logic and what proponents
claim are self-evident axioms.

[10] Caplan, Bryan. "Why I Am Not an Austrian Economist". George Mason
University. Retrieved 2008-07-04. "More than anything else, what prevents
Austrian economists from getting more publications in mainstream journals is
that their papers rarely use mathematics or econometrics, research tools that
Austrians reject on principle...Mises and Rothbard however err when they say
that economic history can only illustrate economic theory. In particular,
empirical evidence is often necessary to determine whether a theoretical
factor is quantitatively significant...Austrians reject econometrics on
principle because economic theory is true a priori, so statistics or
historical study cannot "test" theory."

[12] White, Lawrence H. (2008). "The research program of Austrian economics".
Advances in Austrian Economics (Emerald Group Publishing Limited): 20

[108] Walker, Deborah L.. "Austrian Economics". Library of Economics and
Liberty. Retrieved 2010-01-23._

~~~
dmm
Psychology isn't mathematically formulated either. Is it science? Perhaps an
Austrian economist would argue that economics is more closely related to
psychology than physics.

I have seen several mathematical "proofs" that not only god exists but that he
is catholic. Is that science?

What does the artifact of being mathematically formulated have to do with
something being science?

~~~
philwelch
Psychology (at least contemporary research psychology) is based on empirical
research and judicious use of statistical techniques; Austrian economics is
based on philosophical handwaving. Psychology involves observation and allows
for an element of surprise; Austrian economics, at least since the days of
Rothbard, involves coming up with moralistic arguments for libertarianism.
(The early Austrians were important in the history of economics, but being an
Austrian economist today is like being a Freudian psychologist today; people
do it, but one has to look askance at such a person.)

