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Warren Buffett Explains How The Bailout Is Crushing Healthy Companies

75 points by Flemlord 18y ago

tptacek 18y ago
This is a big extrapolation of intent from a single paragraph of a very long, carefully-crafted letter. Absent from this analysis are all the grafs where Buffett explained why the bailout was the correct course of action.
- sqs 18y ago
  Right. I think Buffett talked about this only because it explains why Clayton Homes won't be able to lend as much in the near future. Buffett obviously thinks the bailout was best for the country and for Berkshire in the long run, but he had to explain these numbers to shareholders (from the table on page 11/12 of the 2008 letter): Pre-Tax Earnings (millions) 2008 2007 ---- ---- Manufactured-housing finance .... 206 526
- cedsav 18y ago
  And Buffett doesn't single out bailout money. He just says that the crisis makes government-backed entities, such as FDIC-insured banks, safer for lenders. Not really surprising. Quote: "Funders that have access to any sort of government guarantee -- banks with FDIC-insured deposits, large entities with commercial paper backed by the Federal Reserve, and others who are using imaginitive methods (or lobbying skills) to come under the government's umbrella -- have money costs that are minimal."
pj 18y ago
I have lost a lot of respect for Buffett over the past few months or so. When he invested in Sachs, then, essentially, lobbied congress for the bailout to boost up his investment: http://dealbook.blogs.nytimes.com/2008/09/24/buffett-calls-bailout-bill-the-right-thing/ http://dealbook.blogs.nytimes.com/2008/09/24/buffett-calls-b... And then this article where he complains about how that very bailout is hurting one of his businesses?? It sounds very hypocritical to me and very selfish in a time when the economy is crumbling due to these /exact/ same kinds of selfish decisions on the part of financial warlocks -- not wizards -- warlocks. Don't tell congress the bailout is the right thing, then complain that it hurts "good" businesses. If he believes what he said, he shouldn't have bought sachs and he shouldn't have been saying it's the right thing to do. I guess that's the point. Buffett's word has lost value. What does he believe? Who is he trying to help? he bought oil at the top. His stock is at 2003 levels, half what it was at it's peak. BRK.A is worth less today than it was in 1998. Look, I used to love Buffett. Read the Warren Buffett way, read this old yellow book he wrote in the 70's about value investing. Studied him. Modeled him. And now... now I don't even know what he believes. His behavior of late is uncharacteristic of him and I'm disappointed in the legend.
- ryanwaggoner 18y ago
  1. It's not inconceivable for him to simultaneously think that a) Sachs was a good investment, b) the bailout is the right thing overall, but c) it introduces some issues that cause suboptimal performance elsewhere in his portfolio. 2. I don't see this little snippet as him complaining so much as explaining the moral hazard that the bailout has introduced. 3. Buffet operates on a very long time scale, so I'm not sure it's useful to say that "lately" his behavior has been uncharacteristic. Let's review in a decade or two. 4. You sound like you're having a crisis of faith. It's going to be ok :)
  - pj 18y ago
    You are right on all your points, I don't disagree. That's exactly what it is, A crisis of faith. I don't know ... I had hope in Obama, not faith, but hope and he's disappointing me. What change is he bringing? He's exacerbating problems, not fixing them. There's no one to trust anymore. I didn't trust them before and for good reason, look what they did. I still trusted Buffett though, but now I'm losing that... It just seems like the rational decisions are getting squashed. It's like all these decisions are anti-evolutionary. We want the bad ideas to die. We want good ideas to thrive. We just continue to believe and spout lies around and eat it like porridge. It's gross. It makes me feel dirty. It's wrong. It's disgusting really. I'm ashamed at what this country that I love has done to the world. Ashamed. Look, I love America. I love this place. Every single one of us won the lottery being born here. We didn't choose to be born here anymore than a poverty stricken child chose to be born into that. The problem is that we won this lottery and now we've squandered it all away on fat cars, fat houses, fat bodies... We've lied to the world and ourselves for greed. For more imaginary money. Stealing. We should be punished. We should feel the pain of our wrongs so that we don't do it again. Instead, here's some ice cream and a nice corporate jet, courtesy of hard working tax payers. A crisis of faith... I guess you could call it that yeah...
    - rokhayakebe 18y ago
      PJ, Obama has been in office only 30 some days. Would you expect the new Yahoo CEO to reinvent the company in 30 days? Could you build a solid enterprise level application in 30 days? Could you double your current monthly revenue in 30 days? No. No and No. Then how in the world can one person change the lives of 300M people (or maybe 6 billion) over 30 days? Seriously what do you expect? Be patient and work on your startup and try to create jobs from it. The money you will generate will allow your employees to purchase more goods, allowing some local business to sustain, allowing those business owners to pay their employees, allowing those employees to pay for their education and so on....
d13hard 18y ago
well if we're to believe the mantra of the invisible hand, then by definition only weak companies are being destroyed. having too much debt is unhealthy. if your corporation needs to live on faith, thats a red flag. look at the companies with huge (or even just respectable) cash reserves...they might have (or want) to do a layoff, but they know full well the company will make it through this
kingkongrevenge 18y ago
As of yesterday, Warren Buffett is below cost basis for his investing career. Does that mean people will stop listening to Warren Buffett?

75 points by Flemlord 18y ago

This is a big extrapolation of intent from a single paragraph of a very long, carefully-crafted letter. Absent from this analysis are all the grafs where Buffett explained why the bailout was the correct course of action.

sqs 18y ago
Right. I think Buffett talked about this only because it explains why Clayton Homes won't be able to lend as much in the near future. Buffett obviously thinks the bailout was best for the country and for Berkshire in the long run, but he had to explain these numbers to shareholders (from the table on page 11/12 of the 2008 letter): Pre-Tax Earnings (millions) 2008 2007 ---- ---- Manufactured-housing finance .... 206 526
cedsav 18y ago
And Buffett doesn't single out bailout money. He just says that the crisis makes government-backed entities, such as FDIC-insured banks, safer for lenders. Not really surprising. Quote: "Funders that have access to any sort of government guarantee -- banks with FDIC-insured deposits, large entities with commercial paper backed by the Federal Reserve, and others who are using imaginitive methods (or lobbying skills) to come under the government's umbrella -- have money costs that are minimal."

pj 18y ago

I have lost a lot of respect for Buffett over the past few months or so. When he invested in Sachs, then, essentially, lobbied congress for the bailout to boost up his investment: http://dealbook.blogs.nytimes.com/2008/09/24/buffett-calls-bailout-bill-the-right-thing/ http://dealbook.blogs.nytimes.com/2008/09/24/buffett-calls-b... And then this article where he complains about how that very bailout is hurting one of his businesses?? It sounds very hypocritical to me and very selfish in a time when the economy is crumbling due to these /exact/ same kinds of selfish decisions on the part of financial warlocks -- not wizards -- warlocks. Don't tell congress the bailout is the right thing, then complain that it hurts "good" businesses. If he believes what he said, he shouldn't have bought sachs and he shouldn't have been saying it's the right thing to do. I guess that's the point. Buffett's word has lost value. What does he believe? Who is he trying to help? he bought oil at the top. His stock is at 2003 levels, half what it was at it's peak. BRK.A is worth less today than it was in 1998. Look, I used to love Buffett. Read the Warren Buffett way, read this old yellow book he wrote in the 70's about value investing. Studied him. Modeled him. And now... now I don't even know what he believes. His behavior of late is uncharacteristic of him and I'm disappointed in the legend.

ryanwaggoner 18y ago
1. It's not inconceivable for him to simultaneously think that a) Sachs was a good investment, b) the bailout is the right thing overall, but c) it introduces some issues that cause suboptimal performance elsewhere in his portfolio. 2. I don't see this little snippet as him complaining so much as explaining the moral hazard that the bailout has introduced. 3. Buffet operates on a very long time scale, so I'm not sure it's useful to say that "lately" his behavior has been uncharacteristic. Let's review in a decade or two. 4. You sound like you're having a crisis of faith. It's going to be ok :)
- pj 18y ago
  You are right on all your points, I don't disagree. That's exactly what it is, A crisis of faith. I don't know ... I had hope in Obama, not faith, but hope and he's disappointing me. What change is he bringing? He's exacerbating problems, not fixing them. There's no one to trust anymore. I didn't trust them before and for good reason, look what they did. I still trusted Buffett though, but now I'm losing that... It just seems like the rational decisions are getting squashed. It's like all these decisions are anti-evolutionary. We want the bad ideas to die. We want good ideas to thrive. We just continue to believe and spout lies around and eat it like porridge. It's gross. It makes me feel dirty. It's wrong. It's disgusting really. I'm ashamed at what this country that I love has done to the world. Ashamed. Look, I love America. I love this place. Every single one of us won the lottery being born here. We didn't choose to be born here anymore than a poverty stricken child chose to be born into that. The problem is that we won this lottery and now we've squandered it all away on fat cars, fat houses, fat bodies... We've lied to the world and ourselves for greed. For more imaginary money. Stealing. We should be punished. We should feel the pain of our wrongs so that we don't do it again. Instead, here's some ice cream and a nice corporate jet, courtesy of hard working tax payers. A crisis of faith... I guess you could call it that yeah...
  - rokhayakebe 18y ago
    PJ, Obama has been in office only 30 some days. Would you expect the new Yahoo CEO to reinvent the company in 30 days? Could you build a solid enterprise level application in 30 days? Could you double your current monthly revenue in 30 days? No. No and No. Then how in the world can one person change the lives of 300M people (or maybe 6 billion) over 30 days? Seriously what do you expect? Be patient and work on your startup and try to create jobs from it. The money you will generate will allow your employees to purchase more goods, allowing some local business to sustain, allowing those business owners to pay their employees, allowing those employees to pay for their education and so on....

d13hard 18y ago

well if we're to believe the mantra of the invisible hand, then by definition only weak companies are being destroyed. having too much debt is unhealthy. if your corporation needs to live on faith, thats a red flag. look at the companies with huge (or even just respectable) cash reserves...they might have (or want) to do a layoff, but they know full well the company will make it through this

kingkongrevenge 18y ago

As of yesterday, Warren Buffett is below cost basis for his investing career. Does that mean people will stop listening to Warren Buffett?