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Archive for the ‘Berkshire Hathaway’ Category
Janet Tavakoli on the "Myth of the Immoral Debtor"; An email from a Charlie Munger student; "Business as Usual"
September 23rd, 2010 | 
Author:
Emails continue to fly in regarding Amazing Arrogance.
I would like to share a few of them including a second email from Janet Tavakoli regarding bankers’ sense of entitlement and “the myth of the immoral debtor”, a term Tavakoli attributes to Elizabeth Warren.
From Janet Tavakoli:
Hello Mish,
Bankers have an enormous, unjustified, sense of entitlement. These people work for failed institutions, yet they feel they are entitled to bonuses that far exceed those of bankers and investment bankers of one or two decades ago.
Note that Berkshire Hathaway owns a big chunk of Wells Fargo, which bought Wachovia, which in turn bought Golden West, the very seat of a lot of fraudulent lending.
Of course, we bailed out Wells Fargo and relaxed accounting rules, so no one knows the true size of the hole in that balance sheet. Charles Munger’s remarks are all the more bizarre in this context.
Here in Illinois, people were lied to and deceived with phony docs. Among many other frauds, people would show up at a closing for a fixed rate loan and be presented with docs for an option ARM. All sorts of variations occurred.
Lisa Madigan, the Illinois Attorney General was first to file the suit against Countrywide, and beat California by minutes. Countrywide settled for $8+ billion on the combined suits, but that was way too low. Madigan publicly stated: “Borrowers didn’t break the law; Countrywide broke the law.”
Of course, some borrowers committed fraud, overreached, or got in over their heads, and there are certainly cases of irresponsibility. However, the reality of the mortgage lending market is that it was rife with fraud by mortgage lenders–from even before the first huge Ameriquest fraud.
I was on CNBC a few months ago and Kudlow, Santelli, and others shouted me down when I brought up predatory lending. Columbia Journalism Review and others took CNBC to task. Widespread predatory lending is well documented. This isn’t a matter of opinion, it’s a matter of fact.
You’d think Munger had been living under a rock. Yet, he hasn’t been, and I believe he knows better. Buffett knows better, too. Unfortunately, instead of using their positions to tell the truth, they are using their positions to propagate what Elizabeth Warren calls “the myth of the immoral debtor.”
I’m no bleeding heart; I’m all about the cash flows.
Investment banks knew the cash flows from these loans wouldn’t be there, but they went ahead anyway. Thus, they are responsible for widespread securities fraud. To keep it going, they created more complex securitizations and got more people involved to cover up the mounting losses that were coming down the pike. This was all known and knowable in advance.
I didn’t “forsee” anything. I have no psychic ability. I’m not prescient. I am, however, an analyst, and I know my stuff. So did they. It was fraud.
So, just what sort of “civilization” is Munger trying to preserve?
Warren Buffett has made statements that he doesn’t see the purpose of going after people. That’s ridiculous.
I am in complete agreement with William K. Black that thorough investigations are long overdue. The crimes aren’t in doubt, but one has to go through the arduous task of collecting evidence even though delays have made the trail cold. That was deliberate.
Best,
Janet
University Student Chime In
Here is Email from a University of Michigan student who heard the speech in person.
Alex writes …
Hey Mish
I am a University of Michigan student and I was present for Charlie Munger’s talk on campus. You probably wouldn’t have been able to sit through the whole thing without screaming obscenities. There was question asked about gold and Charlie said he would never own it. There was also a question about derivatives and Charlie insulted that person as well. Correct me if I’m wrong, but didn’t Berkshire purchase a large quantity of silver below $5? Didn’t Berkshire get involved in the derivatives market?
Thanks
Alex
Charlie Munger Student Chimes In
Here is an Email from a Charlie Munger student and long time shareholder of Berkshire Hathaway.
Hello Mish,
As a regular reader of your column, long time shareholder of Berkshire Hathaway, and Charlie Munger student, I was saddened to read Munger’s remarks. While I am never surprised by his hubris – attend a Wesco shareholder meeting and you will see how the man holds court – I am shocked that he would suggest that those who did not receive bailout money to suck it up.
While I knew that Buffett was a hypocrite, I never expected it from Munger who states that he lived on principles. I sold all my Berkshire shares today.
Keep up the great work, you are one of the few sound voices left out there.
“S”
Bring Out The Criminal Indictments
Pray tell, where is the action on this list?
April 29, 2010: Barofsky Threatens Criminal Charges in AIG Coverup, Goldman Sachs Abacus Deal, TARP Insider Trading; New York Fed Implicated
April 16, 2010: Rant of the Day: No Ethics, No Fiduciary Responsibility, No Separation of Duty; Complete Ethics Overhaul Needed
March 2, 2010: Geithner’s Illegal Money-Laundering Scheme Exposed; Harry Markopolos Says “Don’t Trust Your Government”
January 31, 2010: 77 Fraud, Money Laundering, Insider Trading, and Tax Evasion Investigations Underway Regarding TARP
January 28, 2010: Secret Deals Involving No One; AIG Coverup Conspiracy Unravels
January 26, 2010: Questions Geithner Cannot Escape
January 07, 2010: Time To Indict Geithner For Securities Fraud
October 20, 2009: Bernanke Guilty of Coercion and Market Manipulation
July 17, 2009: Paulson Admits Coercion; Where are the Indictments?
June 26, 2009: Bernanke Suffers From Selective Memory Loss; Paulson Calls Bank of America “Turd in the Punchbowl”
April 24, 2009: Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis
Don’t hold your breath waiting for any of those crooks to be prosecuted.
They are all considered saviors by the president, by Wall Street executives, by the largest banks, by the likes of Warren Buffett and Charles Munger, and all the other ingrates bailed out by the Fed and Congress.
Read the rest at: http://globaleconomicanalysis.blogspot.com
Posted in Banks, Berkshire Hathaway, Charlie Munger, Corruption, Debt, Economic Crisis, Economy, Financial System, Government, Money | 
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Here Come The Hypocrites! (Berkshire)
Here Come The Hypocrites! (Berkshire)
Posted by Karl Denninger
WASHINGTON—Democrats took a step toward their goal of overhauling financial regulation, reaching a tentative deal to set restrictions on trading in exotic financial instruments known as derivatives.
Among the considerations still in the balance: A big provision being sought by Warren Buffett in recent weeks. A key Senate committee had changed its proposed overhaul of derivatives regulation after lobbying by Mr. Buffett’s Berkshire Hathaway Inc., potentially helping the famed investor avoid a financial hit, congressional aides say.
I thought these were weapons of financial mass destruction Warren?
What’s the problem? You don’t want to be forced to recognize the economic and accounting reality of your transactions? I don’t see why that should be a problem.
Posting margin on underwater positions is a reality for everyone who trades on margin – and you do a lot of it. There’s no reason why anyone – you included – should not have to put forward margin – in cash – just like everyone else.
Yeah, I know, Berkshire is “Strong”. So what? That’s not material to the point at hand, which is that when you are short a “PUT”, which is effectively what you are, and the position is underwater, you should be required to post margin!
Reliance on “future economic strength” to avoid this requirement is a big part of why the system nearly blew up. You were a part of it writing those contracts, and you now want to be exempted from safety and soundness requirements on something you identified – in public – as a dangerous practice.
Sorry, but no.
The provision, sought by Berkshire and pushed by Nebraska Sen. Ben Nelson in the Senate Agriculture Committee, would largely exempt existing derivatives contracts from the proposed rules. Previously, the legislation could have allowed regulators to require that companies such as Nebraska-based Berkshire put aside large sums to cover potential losses. The change thus would aid Berkshire, which has a $63 billion derivatives portfolio, according to Barclays Capital.
Why should you be exempt on an underwater position? This is a cash margin deposit and secures your performance. As the position comes back into the money (if it does) for Berkshire the margin requirements would disappear.
Of course if you’re wrong and the contracts do not come back into the money, then your margin becomes a realized loss.
That’s the real problem that is being addressed here – the possibility that these “margin deposits” become not speculative but rather realized losses. Berkshire could avoid this by declaring bankruptcy if it was to run into trouble in the future sticking the holder of these PUTs with the inability to collect.
This is a lopsided “heads I win, tails you lose” proposition that is at the heart of why these contracts need to be on an exchange – all of them. Berkshire wrote these contracts never expecting to have to actually perform, based on their analysis of historical precedent. Since these are European-style options (as a custom derivative) they cannot be exercised early, but since they’re effectively PUTs on the S&P 500 they’re based on a standard reference and there is no reason not to post them on an exchange.
Doing so means that the person holding them can trade against their “in the money” position while Berkshire is forced to prove capital adequacy now and forevermore during the time of their validity.
This is exactly how it should be and is in the regulated commodities, futures and options markets.
Berkshire’s request for “special treatment” must be denied.
Posted in Berkshire Hathaway, Corruption, Derivatives, Financial System, Fraud, Warren Buffett |
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