We’ve been defenders* of Warren Buffett’s ability to navigate the financial crisis, even as critics have fired vollies at him for his company’s sagging stock price, ever-risky derivative bets and mediocre stock picks of late.
But Rolfe Winkler at Reuters has a criticism that rings particularly true. Even as the “Oracle” has bemoaned the government guarantees which let weaker competitors fund themselves at a rate cheaper than what he can get, he’s been a major recipient of bailout money, at least indirectly.
This chart, which Winkler produced, shows the extent to which Buffett portfolio companies ahve relied on government handouts
Without FDIC’s debt guarantee program, even impregnable Goldman would have collapsed.
And this excludes the emergency, opaque lending facilities from the Federal Reserve that also helped rescue the big banks. Without all these bailouts, the financial system would have been forced to recapitalize itself.
Banks that couldn’t finance their balance sheets would have sold toxic assets at market prices, and the losses would have wiped out their shareholder’s equity. With $7 billion at stake, Buffett is one of the biggest of these shareholders.
He even traded the bailout, seeking morally hazardous profits in preferred stock and warrants of Goldman and GE because he had “confidence in Congress to do the right thing” — to rescue shareholders in too-big-to-fail financials from the losses that were rightfully theirs to absorb.
All of what Winkler says is undoubtedly true, though we think Winkler is probably overstating the case a bit. At some point, we’ll have to get over the idea that anyone who was rescued during a bank run is stained for the rest of their existence. If these banks all repay the TARP and roll over their government-backed debt into non-government backed debt, does it make sense to keep complaining that during a crisis they had to be rescued.
What’s more, Buffett himself did not need a rescue. Sure, he benefitted from the government’s intervention, and it’s also true that Berkshire Hathaway (BRK) by being too big to fail had implicit backing from the government, if it ever came to that, but it didn’t, and we still maintain that the fact that since nobody’s found a timebomb lurking in side Berkshire somewhere — when nearly every other financial company had one — is a testament to the fact that he’s practiced, more or less, what he’s preached.
*Big disclosure: the author owns a Berkshire b-share.
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