Quote of the Day:
1. If it’s too good to be true it usually is.
2. Always look at how much the other guy is making when he’s trying to sell you something.
3. Stay away from leverage.
–Warren Buffett, financial rules to live by
Late in 2008, after the bubbles burst, when the “blood was running in the streets”, Warren Buffett made a series of investments. One of the largest was a 10 BILLION DOLLAR (insert pinky into side of mouth as you read that) purchase of Goldman Sachs stock and warrants. 5B went to preferred stock with a 10% dividend and 5B went to the right to purchase 43 million shares of stock at 115 a share. Not long after that, Goldman shares sunk from 125 to 50 and the deal looked pretty bad and Buffett was excoriated by the financial media and blogosphere. But, and you may have heard this in the last day or two, since then Goldman has been printing money. Buffett, who kept loads of cash on the sideline for years leading up to the crash of 2008 before deploying that cash in its wake, now (some are speculating) stands to cash in the 10% dividend, exercise his rights on the warrants and become the majority shareholder in Goldman Sachs.
I don’t know if any of you have read the recent Rolling Stone article on Goldman Sachs and its influence over our economy and over both political parties. You should and I’ll give you another chance here. (Bubble Machine)
The prospect of Buffett taking over this company is one I relish. If he does, we may see our best opportunity for “real change.” Because Buffett believes in an estate tax to keep the super wealthy class from becoming an old world style ruling aristocracy. Buffett believes in making money with real assets, and not novelty vehicles invented in Wall Street boardrooms. He believes in a more fair system of income taxation–raising taxes on the wealthy–noting that in 2006 he paid only 19.1% tax on his income while his employees paid 33%. Just this week I heard him crack that the wealthy who say they will have to reduce their charitable contributions in the wake of a tax increase probably haven’t given more than 12 bucks in their lifetime anyway. He is against the government buying toxic assets of Wall Street banks and instead would support a financial rescue plan that would prevent the institutions responsible for our economic collapse from profiting. “I just think that Wall Street owes the American people one at this point”, he said just this week on Good Morning America. He thinks the first round of stimulus spending was insufficient. He is against the cap and trade bill championed by Democrats and Goldman Sachs because he thinks it is the wrong way to attack global warming. He thinks banks and insurance companies, both of which he is heavily invested in, deserve and need more and new regulations and government oversight. He thinks we were lucky to elect Barack Obama in this time of crisis. All of this, and he is possibly the greatest capitalist in the world.
I don’t mean to say I agree with Buffett on every point. But I like the way he approaches issues. Case in point–Buffett supports caps on lawsuit awards in malpractice cases. I completely disagree. However, in supporting his opinion, Buffett acknowledges his uncertainty of the position if he were a victim and notes that in the grand scheme the limits are virtually meaningless as a cost driver in our health care cost crisis (1/2 of 1 percent). Though I disagree with his conclusion, I respect the fact that his reasons opposed to mine are not based on false propaganda and buzz words, and that he can see both sides of the issue.
Will Buffett’s views on social and economic justice change Goldman Sachs’ steering on the direction of our economy? I don’t know. But if he becomes the controlling force behind the institution that is the alleged controlling force of our national economy and the direction of our national economic policy, I will be watching carefully for “real change.”
A couple of links on PhilosoBuffettism, recent and straight from the Oracle himself, that go beyond what I’ve mentioned, if you are interested: