Saturday, May 01, 2010

Buffett to SEC: “You Have No Case!”

The Berkshire meeting is over. Shareholders have given Buffett and his vice-chairman, Charlie Munger, a standing ovation. And now the parties start.

The ovation is for many aspects of Buffett’s stewardship of Berkshire Hathaway, but mainly it seems his “all-in wager” on the American economy—the purchase of Burlington Northern—looks like it’s already paying off.

The economic pickup that “looked spotty” just a few months ago, Buffett has told us, is picking up steam: rail cars in use are up dramatically. And Berkshire is “net, hiring.”

But the show-stopper came early on, “at the top,” as they say in show business—speaking of which, what was George Lucas doing in the Berkshire director’s section before the meeting began?—when Buffett defended Goldman Sachs…and forcefully.

No, Buffett didn’t actually say to the SEC, “You have no case,” but neither did Gerald Ford actually say to New York, “Drop Dead!”

And yet both men might as well.

Carol Loomis asked the Goldman question right out of the gate, without mincing words—reminding Buffett of his famous, and often-repeated “lose a shred of reputation and I will be ruthless” video from the Salomon Brothers days—and Buffett responded without mincing words.

To be continued…

Jeff Matthews
I Am Not Making This Up

© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.


Preet_Is_Sweet said...

Since when did Warren find time to get a JD?

Me thinks he speaketh with conflicted tongue.

Anonymous said...

I'm seriously getting sick of this guy. When are people going to wake up to the fact that Buffett is as self serving as a low-life penny stock trader. It's remarkable how quickly his views change when it could potentially affect something in his portfolio.

Mark_Leh said...

Buffett may not be a lawyer, but Munger surely is (he started one of the most eminent law firms in Los Angeles). And Munger said that, if he had been on the SEC, he would have voted against the case.

Anonymous said...

While one is certainly right to point out that Warren Buffett has a conflicted position, history says that in the past that has not prevented him from forthrightly speaking his mind. Over the past year or two, he has implicitly criticized Moody's for its lack of integrity and he certainly has not held back with regard to Kraft. In neither case did he defend either of them, yet he seems to leave no doubt where he stands with Goldman.

Having been on the Buyside myself and opposite Goldman, I generally tend to agree with Buffett's assessment: ACA and IKB should have concerned themselves with the assets that applied to the CDO, not to the counterparty to the transaction. As to whether Goldman actually did something illegal, let the SEC prove that in court.


Unknown said...

I was also curious why George Lucas was sitting with the directors. Is he a large shareholder?

BTW: I would hesitate to call someone who gifts his entire multi-billion dollar fortune to chartiy "as self serving as a low-life penny stock trader."

Anonymous said...

Buffett needs to heed some of his own advice... don't buy what you don't understand.

Buffett thought he understood Salomon Bros -- nope

Buffett thought he understood Gen Re -- nope

Buffett thinks he understands Goldman Sachs -- wrong again

If Buffett puts down his cherry coke and actually looks at the prospectus Goldman sent out on ABACUS (its posted on dozens of websites now) ... it says on the cover page, in big letters "Selected by ACA"

That's all it says. The words "Paulson & Co" do not appear anywhere on that page (nor elsewhere in Goldman's sales presentation)

Next, Buffett should read Rule 14 regarding material mistatement.

While some aspects of the SEC case are uncertain (they haven't released all their facts yet, as the investigation is ongoing) ... that complaint is in the words of most law school professors and other disinterested parties "open and shut" against Goldman.

Regardless of whether Goldman violated the law (beyond the above) ... most businesses do not last long when they openly screw over their customers.

Heads Goldman faces serious legal charges, tails their customers don't trust them. The second problem is arguably worse than the first

Goldman will try to settle out of court; airing dirty laundry in public will be far worse than the fine they have to pay for violating Rule 14b

Meanwhile, Buffett should practice what he preaches and stop buying financials ... his track record shows he really doesn't understand the embedded agency risk

Unknown said...

Jeff - what do you make of the James Stewart editorial in WSJ this morning?