Despite being the third richest man in the world, he's long been considered the one decent guy on Wall Street; in fact, he doesn't even work on Wall Street, his offices are in Nebraska.
- He doesn't get chauffeured around in a Rolls Royce; he drives himself to work in a beat up Toyota.
- He's not a corporate cronie of the Bush White House; he's an avowed liberal who pledged 85% of his fortune to the Gates Foundation.
- He's not a reckless CEO who abused derivatives; he's warned against them as "weapons of financial mass destruction".
- He's not a huckster fund-manager selling snake-oil promises of unrealistic returns; even the efficient markets theorists held him up as the one exception who could consistently create alpha.
When the Democrats were putting together financial reform legislation, Buffet talked home-state Senator Ben Nelson into attempting a shakedown. Nelson is experienced at these shenanigans, although he's supposed to be a Democrat, he refuses to go along with the party's plans unless they accomodate his selfish demands; during health care, his attempts at extortion were so blatant that they called it the Cornhusker Kickback. This time, Nelson demanded that the Dems include a provision exempting existing derivatives from capital requirements; when the Dems refused to abide, Nelson pulled his support of the bill, allowing the Republicans to filibuster. Buffet was supposed to be anti-derivatives, so why the change of heart? His company, Berkshire Hathaway, owns enough existing derivative contracts that the exemption would have freed up about $8 billion of capital for investment.
Last week, during the Berkshire Hathaway shareholder meeting, Buffet spoke in defense of Goldman Sachs, who's being sued for fraud by the federal government: "I haven't seen anything in Goldman's behavior that makes it any more subject to criticism than Wall Street generally". Goldman's admitted to knowingly selling bonds that were deliberately designed to fail, their defense is that while this might seem shady, they believed it was perfectly legal. They made some quick money off the deal, but their long-term reputation has taken a hit, and whether or not they're acquitted, Buffet is staking his own rep by sticking up for these greedy sheisters. The only reason he's doing it is because he owns a bunch of their stock.
During that same shareholder meeting, Buffet also stood up for Moody's, one of the credit ratings agencies held largely responsible for the financial crisis. Investors relied on agencies like Moody's to evaluate the reliability that mortgage bonds would be repaid; rather than fulfilling that responsibilty, Moody's rubber-stamped a AAA rating on every pile of shit that crossed their desks, including pools of million dollar mortgages given to people with no assets and no income.
It sounds like Moody's did a shitty job, but in a way, they actually did a great job, because they were paid by the sellers of the bonds rather than the buyers. Its like if the home inspector was hired by the seller of the house rather than the buyer, if he starts pointing out problems with the foundation, the seller will fire him and find someone who'll turn the other cheek and say the house is in good shape. Moody's sold out their credibility to these low-grade investments, making themselves a quick profit in the process.
It seems obvious that the buyers of the bonds shouldn't have trusted Moody's opinion, and it seems like this grift should never work again, but Buffet disagrees, saying the ratings agencies have "great business models". It's no coincidence that Buffet is lending his cred to these sheisters - Berkshire owns twenty percent of Moody's.
In finance, a good reputation is known as an intangible asset; a foolish manager like those at Moody's or Goldman will sell out that reputation for a quick bump to the bottom line, but a smart investor will maintain that cred, transmuting it into a steady income of gold. Warren Buffet built a huge part of his fortune by identifying and acquiring firms that held onto their intangible assets, and in the process, he built up his own reputation over the past fifty years.
Now, its looking like he's cashing in on that reputation; by defending shady derivatives and shady companies, he's risking his long term cred in exchange for a quick profit. That might seem foolish for most entities, but in the case of this one man, it might actually be smart. He's 79 years old and he's not going to live forever. As they say, you can't take it with you, so maybe he's decided this is the perfect time to transform that intangible asset into cold, hard cash. If he dies with his rep intact, all of that value evaporates, but if he sells it out in exchange for cash, that money can be set aside to serve whatever purpose he deems fit, specifically, the Gates Foundation.
So perhaps Warren Buffet is being an asshole for the sake of charity.
Even when he's stupid he's smart. Even when he's shady, he's honest. Or perhaps he's the greatest sheister of them all.
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