Goldman Sachs' and Warren Buffett's BRK Attempt Fannie Mae Tax Scam

Stock-Markets / Credit Crisis Bailouts Nov 08, 2009 - 02:56 PM GMT

Best Financial Markets Analysis Article Some great posts this weekend over at "The Big Picture" by Barry Ritholtz; Barry is essentially the "trailblazer" of financial blogging and many a blogger has followed in his footsteps. In my piece this past week on the Berkshire Hathaway (BRK.a) Burlington Northern (BNI) buyout I didn't have time to get into it but detail oriented readers might of noticed this seemingly throwaway line I tossed in:

.... of course Warren wraps himself in the US flag in his public reasoning for the purchase

If there is one man who bests Cramer at self promotion it is Warren Buffet. Now let's be clear he is an investing genius... a marvel. But for anyone who thinks he is any different than "take your lunch money when your eyes are averted" top honchos at the investment banks, you have been duped. He is walking Capitalism 101 - the good, the bad, and the ugly. Carl Icahn with a far better publicity machine; operating in a corporate socialist state. I didn't post it on the blog but early in the week it came to light that Goldman Sachs (GS) was attempting to buy some tax loss credits from Fannie Mae. These credits are useless to Fannie because Fannie won't be making money anytime this decade... but they would of been a boon to Goldman since they would allow the firm to reduce their tax obligation to the US - need a way to shield those gains from the 98% winning percentage. My first thought was "have these guys no shame?" considering Goldman is only around due to the US taxpayer. Then within the time it takes a Wall Street high frequency trading computer to make 8000 trades (1/4000th of a second) I remember... no Goldman has no shame. Not in its current form anyhow. And as a pure capitalist - it's a brilliant move... why not try? Obviously this would of been a public relations nightmare for the government so other than a story in the Wall Street Journal I thought it was dead in the water. But lo and behold, midweek Warren Buffet (who is now a major stakeholder in Goldman) swoops in and puts his backing behind the Goldman bid. Oh that cute and cuddly "grandpa" guy from Omaha....it must be "ok" then!

Thankfully the Treasury saw this would STILL be a public relations nightmare even with good ole Warren giving his gold plated seal of approval. From there let's look at 2 posts from Ritholtz... gems. Note - if you are not familiar Buffet has been a huge backer of Moody's who is one of the many important pieces of the very broken puzzle that led us into this financial disaster [May 28, 2009: David Einhorn v Warren Buffet on Moody's] I have been struck that Buffet has not once come out and said (a) what Moody's pulled off was a massive scam and either (b) I know that being in an oligopoly type of business I was benefiting from this scam or (c) I was duped. And let's just be blunt and say the chances of Buffet being duped are between null and void.

#1 Treasury DK's Goldman/Fannie/Berkshire Tax Scam - here

Due to an unexpected outbreak of rationality (and perhaps embarrassment), the Treasury department has rejected requests of Goldman Sachs and Berkshire Hathaway to purchase Tax Credits from Fannie Mae.

This paper transaction would have provided precisely zero value to the taxpayers, and allowed these firms to add to the piles of bailout monies already received by avoiding billions of dollars in taxes otherwise legally owed. It would have been a license to steal.

The sheer arrogance, the colossal gall involved boggles the mind.

And while we expect this sort of behavior from the Vampire Squid — they take pride at Goldman in not just being whores, but in being the highest paid callgirls in town — it is stunning to see such behavior from the usually politically astute Oracle Tentacles of Omaha. For Warren Buffett’s Berkshire Hathaway to team up with Goldman Sachs (which he now owns a healthy chunk of) is a bit of a revelation: We have been spun by his genteel manner, his aw shucks down-home-isms, his off Wall Street, less bloodthirsty approach to investing, into somehow believing he was different.

We have been duped.

We should not have been. Buffett has been the biggest shareholder in Moody’s — a collection of filthy whores and pederasts who were one of the main contributors to the economic collapse — should have raised serious questions as to his judgment in our minds. That he sat by silently as they did their worst, sodomizing the nations credit system for fun and profit was a powerful indictment of Buffett as someone far different than his public persona. In retrospect, as Moody’s was helping to destroy America’s financial system, his merely spouting off aphorisms about about Financial WMDs now looks too cute by half.

Those of you who used to respect Warren Buffett might consider moving him off your increasingly short list of participants in the marketplace who behave ethically. This crude attempt to steal billions — coming on the heels of the bull**** about “Investing in America” by buying Railroads — is a shock to me; perhaps that is a testament to my naivete.

Perhaps the Oracle of Omaha has been infected by a new flu variant, the H1N1 GS mutation. It is usually non fatal to the host, but destroys its reputation . . .

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Back to my comment's here: Potentially even more eye opening is what I call the American system.... "corporate socialism". Remember socialism for the people is an evil thing and turns us into Europe. Socialism for the top flight of elite financiers and corporations? That's fine and dandy! Check out this data...

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#2 Buffet's Bailouts - here

He (Rofle Winkler) is similarly annoyed with St. Warren — but rather than engage in my sophmoric venom spew, he went to the spreadsheet to discover that Buffet owns major stakes in 8 companies that have received more than $100 billion in government bailouts.

Capitalist? Hardly. Sounds more like just another crony to me.

Rolfe also posts this fabulous chart:

#3 Rofle Winkler's original post - Buffet's Betrayal here

But it turns out much of the story is fiction. A good chunk of his fortune is dependent on taxpayer largess. Were it not for government bailouts, for which Buffett lobbied hard, many of his company’s stock holdings would have been wiped out

He even traded the bailout, seeking morally hazardous profits in preferred stock and warrants of Goldman and GE because he had “confidence in Congress to do the right thing” — to rescue shareholders in too-big-to-fail financials from the losses that were rightfully theirs to absorb.

And what of Moody’s, the credit-rating agency that enabled lending excesses Buffett criticizes, and in which he’s held a major stake for years? Recently Berkshire cut its stake to 16 percent from 20 percent. Publicly, however, the Oracle of Omaha has been silent.

What saddens me is that Buffett is uniquely positioned to lobby for better public policy, but he’s chosen to spend his considerable political capital protecting his own holdings.

To me this feels like a betrayal. There’s a reason he’s Warren Buffett and not, say, Carl Icahn.

As Roger Lowenstein wrote in his 1995 biography of Buffett, “Wall Street’s modern financiers got rich by exploiting their control of the public’s money … Buffett shunned this game … In effect, he rediscovered the art of pure capitalism — a cold-blooded sport, but a fair one.”

But there’s nothing fair about Buffett getting a bailout, about exploiting the taxpaying public for his own gain. The naïve 14-year-olds among us thought he was better than this. What would Ben Graham say?

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Back to my comments

Summary: Is Warren B. genius? Absolutely. Does he know how to work the system like no other? Absolutely. Part of American ~~free market capitalism~~ corporate socialism? At the front of the line... with bells on. Soft and cuddly? Not so much.

By Trader Mark

http://www.fundmymutualfund.com

Mark is a self taught private investor who operates the website Fund My Mutual Fund (http://www.fundmymutualfund.com); a daily mix of market, economic, and stock specific commentary.

See our story as told in Barron's Magazine [A New Kind of Fund Manager] (July 28, 2008)

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Comments

Ben Broughton/LSU ACCT Major
09 Nov 09, 12:57

NO SENSATIONALISM PLEASE!!!

I hope you realize that under a healthy economy selling tax credits is actually quite common. The purchaser of the tax credits gets a tax break and the seller includes the income from the sale in taxable income effectively minimizing the losses from the tax credits while paying tax on income received.

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