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:
http://www.swamppolitics.com/news/politics/blog/2009/06/warren_buffett_not_off_the_bot.html
Travellinbaen 
TB, I like what I hear. all that sounds like a move in the right direction. I’ve been saying that it will take one or a few of the very wealthy and powerful to stand up and say “ENOUGH!! If we take ALL the money from everyone – we lose in the long term!!”
Oh, I see what you did here. Getting all clever with the titles of your posts. Well done, my friend. And here I was trying to come up with some more song lyrics. Damn. You’re being all edumicated and stuff.
The official Republican National Committee response:
We regret to have to bear witness to the demise of Warren Buffett’s mind. He once was a great man, but he has obviously now lost his way. Everyone knows we need MORE tax breaks for the rich and EVEN LESS regulation.
We have prayed to our fellow Republican friend God that He might help Mr. Buffett regain his senses.
Oh, and it’s Barack Hussein Obama’s fault that Mr. Buffett doesn’t support our fine Republican philosophies.
I think if Buffett takes over Goldman, there is going to be an interesting story to be told. I would love to interview him, as controlling shareholder in the firm, on the Rolling Stone article, the “next” bubble it predicts regarding cap and trade, and ethical considerations regarding the revolving door between the firm and high government employment.
If he takes over Goldman, he will have a unique opportunity to put his money where his mouth is. My inner conspiracy theorist wonders if this was his plan all along.
I fell in love with Mr. Buffet a couple of years ago when I first started an MBA. You would not believe (or possibly you would) how much of his philosophy was discussed in every sort of business class! Especially in the leadership area – he is a force to be reakoned with. Love him!
The Goldman deal will be interesting to watch. I’d like to see Buffett get a chance to put his money where his mouth is.
As someone who still leans towards the right. I find in humourous when my die hard republican friends get all fired up when they start talking about taxing the rich. Newsflash just because your household income is 2ook, it does not mean your rich, your comfortable not rich. Your not in their club, get over yourselves.
That’s a lesson I had to learn myself years ago Coach. It’s the great American myth. I would never support taxing the rich at the levels they were from the 30’s through the 70’s (from 90% during WWII down to around 75 when Reagan was elected), but a return to the levels of the Reagan years, up from 36 to around 42 for income over about half a million makes a lot of sense to me, as does an estate tax on estates over 10 million.
The estate tax always gives me a kick. Or excuse me, the “death” tax. It’s funny when people get up in arms about that, especially people who are nowhere near the threshold of actually having to pay it.
I do not think it is actually the death tax or the percentage of tax paid based on income that has some Americans up in arms. I think it is the fact that most Americans do not trust the system to spend the tax dollars appropriately. There is to much fraud, bad roads, failing infrastructure, etc… for most working Americans to support any additional taxes. Whether the new or raised tax has any effects on them or not. I make a good living I am not rich but, the amount of tax I pay for the return I receive is staggering.
I can’t argue with that Larry. My views have simply been tilted by the fact that the amount of money I pay for such things as private health insurance has become even more staggering. I think the root of all this is the lobbying problem and campaign contributions. It will never gain traction, but the first thing we really ought to do if we are ever to get better representation is establish public funding of federal elections and take the money raising game out of the equation. Until then, all politics boils down to a “pick your poison” debate. Waste it on wars abroad or waste it on overpriced roads at home, that’s the choices.
We have no control over how THEY spend our money that we must give to them no matter what. That bothers me the most!
We are going to end up like Russia.
That’s crazy Greeg. The Russians incurred a huge debt with years of runaway defense spending, then got into a quagmire of a war in Afghanistan, then had an economic collapse caused by corruption of its most powerful financial institutions…..oh, wait a minute…..
I agree! You should not be able to get rich through campaign contributions. I saw this weekend, Bennie Thompson has 1.5 million on hand. When he retires he gets it all just like Trent. Then he turns around and becomes a lobbyist like Pickering and Trent. I have said it before, I do not not mind paying some tax as long as the money is used for the greater good and is used efficiently. That does not happen now.