Most casual followers of business news in America are familiar with Warren Buffett, and most are likely equally familiar with his decision, a number of years ago, to give most of his money to the Bill and Melinda Gates foundation. It was a decision that garnered him incredible respect, and mummified him in a teflon coating of PR magic that would have left Rockefeller’s Ivy Ledbetter Lee, in utter awe of the man.
Since then, Warren Buffett has come to challenge Uncle Sam, as the most venerated relative in the American family. With infinitely deep pockets, a non-threatening posture and a jolly smile, he is the closest thing to Santa Clause for adults.
Yet, to misquote Abraham Lincoln, “you can fool most of the people most of the time, but you can’t fool all the people all the time.” And so it is in the case of Warren Buffett, and his carefully crafted image. For those of us who have been following Buffett’s career, even from a distance, with any degree of objectivity, it isn’t hard to see that the man is a master manipulator and a true machiavellian.
In 2004, Buffett wrote a small article for Fortune magazine titled “Squanderville versus Thriftville.” It was a magnificent piece, and really the first time that I came in contact with the mind of Warren Buffett. I was in my last year of college at the time, and had just begun the process of unlearning every morsel of nonsense taught by the staff of Keynesians at NYU, who actually thought they were teaching us economics.
Needless to say, Buffett’s words cut like a knife. He was right, and time proved him right.
Yet, as the economy began to sputter, and the markets began to deflate and eventually crash from the fall of 2008 into the spring of the next year, Buffett went from being a harsh critique of deficit spending, low interest rates, and deindustrialization to serving as the “Colin Powell of TARP.” He became the salesman for the bailouts, not just of AIG and the major US banks, but the entire lifestyle of the wall street banker.
Indeed, prior to 2008, Warren Buffett was highly critical of the credit deluge presided over by Chariman Greenspan. He even advocated the erection of trade barriers – he called them Import Certificates – as a last-ditch effort to revive American industry, putting him in the same camp with Goldwater republicans, the likes of Pat Buchanan. But something happened that caused Warren to change his tune, and that something was the opportunity of a lifetime, even for a man in the twilight of his years.
Warren Buffet, wise enough to foresee the credit crisis that took the financial markets by storm, was the most well-capitalized investor left standing in the middle of the gale engulfing the markets. Publicly reciting the old Rothschild adage “you buy while blood is running in the streets,” Buffett swooped in, buying $5 billion in preferred shares of Goldman Sachs, while adding significantly to his position, both personal and on behalf of Berkshire, in Wells Fargo.
The moves came before the house was set to vote on the TARP legislation that was being railroaded down the throat of congress by Paulson and his gang of thugs at the treasury. Buffett made the deal with Goldman, as well as additional investments in GE, Wells Fargo and others under the assumption that TARP would be passed. But it wasn’t; at least, it wasn’t passed on the first vote. The house rejected the legislation, and the Dow posted its largest one-day point drop in history – 777 points.
Buffett wasted no time. He was immediately making the rounds all over mainstream media, from CNBC to PBS, repeating in no uncertain terms, the very dire predicament that he felt the United States was now in.
“You’ve had an economy that’s like a great athlete that’s had a heart attack, cardiac arrest, and the paramedics that have come, [and are] arguing [about] who was at fault, the athlete should have been checking his blood pressure more carefully. The important thing is to apply the resuscitator. It doesn’t help spending time worrying about who is to blame for the patient having the heart attack.” – Warren Buffet, sounding off a day after congress failed to pass the $700 billion bailout
Comparing the American economy to a great athlete was more than slightly disingenuous. Warren had spent the last several years publicly lambasting the government and the Fed for helping to destroy the foundation of American industry. After all, it was squanderville that Buffett was comparing to the USofA, not the astute savers of thriftville. If anything, America was an obese shopaholic, whose cardiac arrest was due to a perfectly forseeable artial blockage.
And yet, despite his very clear warnings about deficit spending and American overconsumption, Warren Buffett quickly and smoothly reversed himself almost on the spot. He went from lambasting congress for running up the national debt, to reprimanding their failure to pass the bailout, saying that it “was the right thing to do,” given that America had just been “hit by an economic pearl harbor.” He even went so far as to say, in a Fox Business News interview, that we were “looking over a precipice” and that “if congress doesn’t help us on this [passing the bailout], heaven help us.”
But it was Buffett’s final appearance on Charlie Rose’s show on PBS, right before the bailout package was finally passed that shows, without a shadow of a doubt, just how shrewd and machiavellian Warren Buffett truly is.
We need to remember that, at this time, the American people were scared shitless. The vast majority of them are financially illiterate, and are dissuaded from learning due to the complex terminology that is used to cover up what is often very basic accounting fraud (case in point, the Repo-105 scam). Therefore, in the same way that millions of skeptical Americans were sold on the Iraq war by Colin Powell’s famous “anthrax vial” appearance at the UN, so too were they cajoled by the soothing, trustworthy and warm familial persona of America’s greatest philanthropist, Warren Buffett.
Buffett’s October 1st, 2008 appearance on Charlie Rose was arguably his finest moment. Condensing all the arguments and smooth talk that he had so skillfully floated out into the mainstream debate in the preceding weeks, Buffett managed to convince a nation of skeptics that, although wall street could not be trusted, he certainly could be. And he was telling us that this bailout just had to be done. Pass the bailout now, he argued, and we can worry about who is to blame for this mess later:
BUFFETT: I said, if they do it – I don’t know who the next Treasury secretary will be. I would say this – I would – they hate this term in Washington, obviously, but I would hand something pretty close to a blank check to a fellow like Hank Paulson…[annexed from a statement made later in the same interview] he’s got the interest of the country at heart.
ROSE: Would you really? A blank check, $700 billion, go spend it.
BUFFETT: Yes. Go invest it.
Go invest it. And that was an important distinction drawn, not coincidentally by Warren Buffett, for as he made clear later in the interview, and in the weeks prior to the bailout, the American people were not bailing out the banks, but rather making an investment from which they would eventually, actually profit:
BUFFETT: If we buy these assets intelligently, the United States Treasury will make money. I mean, it’s borrowing money. It’s just a few percent a year and these assets are better than that.
ROSE: These people who argue against you will say the assets are worth much more than mark to market says. And therefore, we’re not seeing a reality.
BUFFETT: Well that is the reality, and that’s the reality of what they’re going to sell them to the Treasury for too. You’ll get in a lot of trouble when you start putting fictitious numbers on value. You can explain the fact that these are depressed prices, you know, we think these assets are going to be worth a lot more. And I think that case could be made in certain situations.
But I think to just say, you know, we’re going to say a $1 of cash is worth $2 all of a sudden, you know, it isn’t worth $2; it’s worth a $1 today. I think once you start putting phony figures into financial statements, you can get into a lot of trouble. We’ve seen so much of that in the last 20 years.
So, Buffett was telling Charlie and the rest of the American public that the $700 billion dollars that would be tacked onto the national debt, would be used to buy distressed assets at depressed prices. These illiquid securities (referred to at the time as “toxic assets”) would be temporarily held by the Treasury long enough for the market to recovery, after which time, they would be sold back to the banks at a profit. Sounds good right? But wait, there’s more:
BUFFETT: It could be very tough. Inflation could be a very – is a likely consequence on what’s going on now. Right now, we’re, in effect, making – to some extent, making a choice between future inflation and getting off the floor. And we’re likely to have more inflation in the future as a consequence of the things we do to fight the present situation.
The bailout was going to cause inflation? How could it cause inflation if we were buying distressed assets with the intention of selling them back at a profit? Inflation can only be caused by an increase in the supply of money and credit. If we are lending the banks money on a short-term basis, holding their “toxic assets” as collateral with the intention of selling them back at a profit, doesn’t’ this mean that we are going to be extracting the extra liquidity that we are now pumping in?
In fact, that’s exactly what this means, only Warren Buffett ultimately knew that the American taxpayer was never going to see dollar-one of that money. Not only did the taxpayer not buy the assets at market value, but he actually payed 100 cents on the dollar, meaning that he payed the banks whatever they claimed the assets were worth. Hence the phrase “mark-to-make-believe.”
So, instead of paying market value when we bought them, and getting market value when we sold them, the US government paid whatever the banks wanted when it came time to dish the money out, and now that the banks have been made whole, they are demanding market prices for the crap that they unloaded on our national balance sheet just 2 years prior (the Fed now wanting to sell its MBS is just one example).
And finally, Warren Buffett wanted to assure us that neither he, nor Berkshire Hathaway, had anything to gain from his appearance on Charlie Rose that night.
ROSE: Right. There are those who – you just said you would do it yourself – there are those who believe, and it has been suggested, that this is the time for Warren Buffett to answer the call of his government in a country that’s been very good to him. What are you prepared to do yourself beyond run Berkshire Hathaway well?
BUFFETT: That’s my job. Any time I can be of help to the government, in terms of giving advice – I’ve given a little advice, actually.
BUFFETT: Trouble is it gets when it really counts. But anyway, obviously, I’m here tonight talking about this for that reason. It isn’t going to do anything for Berkshire Hathaway. That isn’t really true.
And there you have it in a nut shell. His job. That’s what it all comes down to. This is what Warren Buffett had been pitching the American people all night, that not only was he someone you could trust, but that it was in fact his job to make sure that the American people got a fair deal. It was his job to make sure that we didn’t get fleeced. One of the greatest American capitalists, who had never run for public office or held a policy post in Washington DC, had effectively anointed himself negotiator-in-chief for the biggest power grab in American history.
So when Michael Steinhardt, came out on national television and called Warren Buffett the greatest “con-job” on planet earth, it offered people in the mainstream a moment to “reflect” (as he put it) on the deeds of a man that will otherwise be remembered, not as an enabler of elitism and financial oligarchy as he rightfully should be, but as a champion of the working man, who served the people more than he ever served himself.