Buffett’s second great decision was to maximize, at great financial cost to himself, the interest that the public might take in his business affairs. In 1986, Congress passed a tax reform that changed how Berkshire Hathaway’s capital gains were taxed. Previously, those gains had been taxed only once, when a shareholder sold his shares. Now, so long as Berkshire remained a public corporation, Buffett would need also to pay tax on any gains from the sale of stocks inside his portfolio. There was an obvious solution, and it was seized upon by public fund managers everywhere in Buffett’s position: shutter the corporation and become a private equity fund. At the time Berkshire had $1.2 billion of unrealized capital gains. Buffett might have doled these out, and then restarted as a partnership free of corporate double tax. Instead, at a cost to himself that Schroeder puts at $185 million, he kept Berkshire intact.
One of the great things about working for Reuters is that if an important story appears on the wire, I can agitate to have it put online as well. So go and read this, by Alexandra Valecia and Alonso Soto: the astonishing yet seemingly all-but-missed news that Ecuador’s audacious and dangerous decision to bite its thumb at the entire international financial community has seemingly been ratified by not only its Andean neighbors, the owners of the Andean Development Corporation, but also by the international community more generally, in the shape of the Inter-American Development Bank.
Michael Lewis has done it again, this time with a monster 4,700-word book review of Alice Schroeder’s biography of Warren Buffett. (Of course, it’s much less of a monster than the 838-page book itself, and it’s much more readable than Schroeder’s ridiculously overspecific prose.)
Are AIG traders dumping their CDS positions at ridiculous prices in order to ingratiate themselves with potential future bosses? It seems not — in fact, it seems that they’re barely making a dent in AIG’s $1.5 trillion CDS portfolio at all, any more. Maybe that’s what happens when you stop paying retention bonuses: your traders stop losing you billions of dollars. Yet another case where going to the beach and doing nothing is vastly more profitable than working very hard.