Conflict Of Interest Extraordinaire - Warren Buffett Reveals His Hand As The Status Quo By Issuing Public Support For Goldman Sachs In SEC Case
It is morally-dubious at best for an individual with a very large investment in a firm to be making public proclamations with regards to any case against said firm. It's surely his right under the law but that doesn't mean it is appropriate. There are well too many conflicts of interest and the wealthiest man in America realizes his public comments have an ability to sway sentiment. In fact, he has remarked of this dynamic before. Which makes these public proclamations even more disturbing. What is Buffett's motive? Buffett clearly doesn't know a) the extent of any and all investigations by varying government agencies both in the United States and abroad. b) Any evidence that may or may not have been uncovered or disclosed as of yet, c) any potential future litigation due to what will be determined during any discovery process either on topic or on a separate topic.
It would have been more appropriate for Buffett to remark that he doesn't make public comment about current or impending litigation or investigations.
While we are talking about Buffett, let's look at another topic we did not remark of at the time of its passing. That is, Buffett's purchase of Burlington Northern railroad. People obviously have many reasons to listen to Warren Buffett. I have an admiration for someone willing to swim against the tide but we have also been critical of him for making some decisions that later turned out to be suspect at best. In fact, Buffett would be a comparatively poor man right now were the Federal Reserve and American taxpayer not have bailed him out during this crisis. He was a direct beneficiary to this bailout. And that means he was invested in the fraud that caused it. Not consciously but as a true believer in the status quo. I don't have a problem with that per se, but I believe Buffett falls into a category of people who have successfully benefited from many morally-dubious dynamics created by a captured government. ie, They have benefited him personally but have not benefited society. This "investor class" as it is now called are missing the implications of the economic crossroads we sit at today. That Buffett has no problem supporting Goldman Sachs in its seamy business practices and front-running of commodities, oil, stocks and other schemes it is involved in shows how deluded he has become. He has personally profited while society has witnessed its wealth transferred to people such as Buffett in these schemes. Where is Buffett's call to re-regulate banks, ban risky trading, ban derivatives, ban scheming in commodities markets, re-regulate or bust up monopolies? Yes Buffett has remarked of the dangers of derivatives but at the same time he is one of their largest users for pure speculation rather than business purposes. Remember, as we have said time and again, I expect those benefiting most from the status quo to suffer disproportionately as this crisis reaches its end state.
Over the last few years Buffett has been often quoted as saying the railroad industry has changed and he was slow to realize it. The reality is the railroad business hasn't changed. In other words, it is highly cyclical. Buffett believes it's different this time by making his "changed" remarks. The railroad business hasn't changed. Buffett is cagy enough to realize he doesn't want to fight competition so he is highly selective in his acquisitions. Most of his acquisitions are limited to corporations that have little to no competition. Railroads have consolidated to the point where they are really unregulated monopolies. In other words, each railroad has carved up a geographic niche where they rule as little fiefdoms. They therefore have substantial pricing power only regulated by the pinch point of customer pain. This fits in with Buffett's love of the competition-less insurance business. A few years ago we highlighted insurance as a racket. And I mean racket in the legal sense of the word. This isn't an investment in capitalism. Buffett's favorite investment is in cronyism where competition has been removed from the market. And why not? Who wants to compete when they can mint money at society's expense? At the expense of jobs and economic vibrancy?
Buffett is paying valuations never before seen in the railroad business to acquire a company that is highly levered in debt and to globalization. Both were toxic and foolish trades. He bought at the 25 year bull market peak at valuations never before seen in Burlington Northern. Buying at valuations never before seen after decades of a massive and building financial bubble isn't exactly prescient. It may appear to be so today but then it would have appeared to be so in 2007 as well. Buffett is getting stuck with the bill for a posh meal at an incredibly expensive restaurant. And he is hoping that dinner will translate into future business. If commodities bust and energy busts, both of which have been our position since starting this blog, and in fact have already busted to some degree, Buffett is going to be left holding the bag with Burlington Northern.
It would have been more appropriate for Buffett to remark that he doesn't make public comment about current or impending litigation or investigations.
While we are talking about Buffett, let's look at another topic we did not remark of at the time of its passing. That is, Buffett's purchase of Burlington Northern railroad. People obviously have many reasons to listen to Warren Buffett. I have an admiration for someone willing to swim against the tide but we have also been critical of him for making some decisions that later turned out to be suspect at best. In fact, Buffett would be a comparatively poor man right now were the Federal Reserve and American taxpayer not have bailed him out during this crisis. He was a direct beneficiary to this bailout. And that means he was invested in the fraud that caused it. Not consciously but as a true believer in the status quo. I don't have a problem with that per se, but I believe Buffett falls into a category of people who have successfully benefited from many morally-dubious dynamics created by a captured government. ie, They have benefited him personally but have not benefited society. This "investor class" as it is now called are missing the implications of the economic crossroads we sit at today. That Buffett has no problem supporting Goldman Sachs in its seamy business practices and front-running of commodities, oil, stocks and other schemes it is involved in shows how deluded he has become. He has personally profited while society has witnessed its wealth transferred to people such as Buffett in these schemes. Where is Buffett's call to re-regulate banks, ban risky trading, ban derivatives, ban scheming in commodities markets, re-regulate or bust up monopolies? Yes Buffett has remarked of the dangers of derivatives but at the same time he is one of their largest users for pure speculation rather than business purposes. Remember, as we have said time and again, I expect those benefiting most from the status quo to suffer disproportionately as this crisis reaches its end state.
Over the last few years Buffett has been often quoted as saying the railroad industry has changed and he was slow to realize it. The reality is the railroad business hasn't changed. In other words, it is highly cyclical. Buffett believes it's different this time by making his "changed" remarks. The railroad business hasn't changed. Buffett is cagy enough to realize he doesn't want to fight competition so he is highly selective in his acquisitions. Most of his acquisitions are limited to corporations that have little to no competition. Railroads have consolidated to the point where they are really unregulated monopolies. In other words, each railroad has carved up a geographic niche where they rule as little fiefdoms. They therefore have substantial pricing power only regulated by the pinch point of customer pain. This fits in with Buffett's love of the competition-less insurance business. A few years ago we highlighted insurance as a racket. And I mean racket in the legal sense of the word. This isn't an investment in capitalism. Buffett's favorite investment is in cronyism where competition has been removed from the market. And why not? Who wants to compete when they can mint money at society's expense? At the expense of jobs and economic vibrancy?
Buffett is paying valuations never before seen in the railroad business to acquire a company that is highly levered in debt and to globalization. Both were toxic and foolish trades. He bought at the 25 year bull market peak at valuations never before seen in Burlington Northern. Buying at valuations never before seen after decades of a massive and building financial bubble isn't exactly prescient. It may appear to be so today but then it would have appeared to be so in 2007 as well. Buffett is getting stuck with the bill for a posh meal at an incredibly expensive restaurant. And he is hoping that dinner will translate into future business. If commodities bust and energy busts, both of which have been our position since starting this blog, and in fact have already busted to some degree, Buffett is going to be left holding the bag with Burlington Northern.
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