Opinion

Felix Salmon

Buffett’s PR disaster

By Felix Salmon
June 3, 2010

From a PR point of view — and Warren Buffett cares deeply about his public image — yesterday was arguably the single worst day of Buffett’s life. He was dragged against his will — with a subpoena, no less — in front of the Financial Crisis Inquiry Commission, which grilled him on whether, as Moody’s largest shareholder, he took any responsibility at all for the disaster that happened there. His answer — no — was met with unanimous derision, both in the mainstream media and in the blogosphere: see The Pragmatic Capitalist, or Bond Girl (“It’s funny how heroes end up cutting themselves down to size even when no one else can”), or Edmund Andrews:

Warren Buffett has turned into an evasive, disingenuous, bumbling buffoon…

When asked by Phil Angelides, the commission chairman, what the agencies did wrong, Buffett passed the buck as shamelessly as every other Wall Street powerhouse player: “I think they made the same mistake that virtually everybody else made,” Buffett told in the first in a long series of evasions…

Having basked for years in public adulation for his his investment brilliance, Buffett suddenly acted as if he hadn’t the slightest idea about the goings on at Moody’s even though Berkshire Hathaway had been one of its biggest shareholders.

Between his Moody’s investment and his Goldman investment, Buffett is slowly working out that only half of his public adulation comes from his compounded annual returns. The other half comes from the fact that he seemingly got those returns investing in Coca-Cola, motherhood, and apple pie. Rather than in entities without which the current wave of misery overtaking homeowners nationwide could never have happened.

Buffett is that rarest of institutional shareholders: someone who actually owns and runs lots of large companies of his own. As such, he can and should act much more like an owner than most shareholders. But he doesn’t, and he has no visible desire to fix the problems at Moody’s or at the ratings agencies more generally. He just says he wishes he’d sold his Moody’s stock earlier, passing on those losses to some other sucker. I don’t think he’s ever going to be able to live this one down.

Comments
43 comments so far | RSS Comments RSS

Buffett was widely admired as a commonsense executive and investor with Main Street values who shunned the high salaries and perks of Wall Street and corporate America. In one fell swoop, and in probably the last major accounting of his professional life, he has for some reason decided to throw that reputation away and cast his lot with the broken Wall Street status quo.

I don’t get it. The only thing I can figure is that he counts his friendships with the Wall Street brigands more than he does that reputation, which he built up over a period of decades.

Posted by Curmudgeon | Report as abusive
 

It’s like we just saw mother Theresa kick a homeless person for getting her habit dirty. Unfortunately, we are collectively that homeless person.

Buffett’s hypocrisy is even more glaring when we look at his acquisitions over the last few years. Not only did he have his cake and eat it at Moody’s but he also invested in the worst malefactor when it came to abusing those ratings: Goldman Sachs. Speaking of ratings abuse let’s not forget his investment in General Electric – that enfeebled hedge fund in drag. Clearly due diligence for Mr. Buffett and Mr. Munger goes no further than K’s and Q’s and a token visit to the C-Suite. But with GE, I wonder, did Warren even read GECC’s K?

Posted by edwinlefevre | Report as abusive
 

His adulation was WAY, WAY overdone.
On the other hand the critque is analogous to critiqueing Obama for not having “enough” emotion. Buffet is a billionaire – he didn’t get that way by being the most “generous” guy around. He did it by understanding tax consequences, not overpaying, not falling for hype, and so on.

Would the mania have stopped had Buffet said you all are idiots for paying 5X your income for a house? No one can stand between people and what they perceive to be an easy buck.

As far as Moodys, (or any rating agencies) why do people STILL pay attention to what they say? Buffet saw that this was a government sanctioned (bonds MUST be rated) oligopoly and took advantage – nothing more, nothing less.

Posted by fresnodan | Report as abusive
 

Here too we see what we ourselves have wrought over the past 30 years: we have created a culture of greed and deceit. We swallowed the supply-side arguments so wholly that we are willing to tolerate any lie, any deception, any fraud, no matter how damaging or grandiose, as long as “shareholder interests” are somehow served. If profits are rising at Goldman due to the piling of one swindle on top of the next, that’s great, because surely all that money will start trickling down soon.

Buffett is no different from any other driver of this system – he will lie, cheat, and steal in order to achieve profit, with the full knowledge that the entire weight of the US Government will be behind him if ever his empire of deceit should show a crack or two.

We have all created this system together. Until we rise up with a single voice and demand honesty, starting by being scrupulously honest ourselves, we are hopelessly condemned to the total ruination of our country, our economy, and our standard of living.

Our only hope is a revolution for the truth. And that is one slim hope, indeed.

Posted by JackMack | Report as abusive
 

“I think they made the same mistake that virtually everybody else made,”

Is this not a true statement?

It’s why we had a systemic failure afterall, everyone was getting rich and no one stopped to ask why. IMO too much blame is being put solely on the shoulders of “wall street” and not enough on the individual borrowers who took out ridiculous loans. Plays well into politics that way i suppose, us v. them and all that

Posted by common_sense | Report as abusive
 

Buffett did speak out against what KFT did recently, and KFT did it anyway; his control is limited, and his attention is divided. The size of the MCO holding relative to the market cap of MCO (or the size of other shareholders’ holdings in MCO) is less relevant than its size relative to BRK, which limits how much attention or control he can reasonably pay to the finest details of how the business is being run.

Posted by dWj | Report as abusive
 

Buffet was the main beneficiary of the love fest with Mega Earners that were idolized by the free market crowd.

Now that the shine is off that group of thugs he is exposed as another rich jerk who profits from misery.

He lies constantly and is most likely involved in criminal activities judging by the way he is running around talking about Lloyd Blankfein and other known crooks.

Old men like him should be playing with their grandkids instead of their secretaries.

Posted by jstaf | Report as abusive
 

What? Did you actually watch his testimony, or just read the typical Reuters garbage?
Buffett was brilliant. Phil Angelides, on the other hand, was waaaay over his head.

Posted by GRJensen | Report as abusive
 

“Warren Buffett has turned into an evasive, disingenuous, bumbling buffoon…”

It sounds like he’s finally qualified to enter politics.

Posted by DonthelibertDem | Report as abusive
 

The article states that the “misery overtaking homeowners nationwide could never have happened” without Moody’s or Goldman – that is simply not true. Asset price bubbles are as old as capitalism; they have occurred throughout modern economic history, and will continue regardless of any finger pointing and blame games perpetrated by politicians or the media.

The article states that half of Buffet’s admiration comes from investing in apple pie – that is ridiculous. His admiration (other than his investing record) has been his outspoken nature against what he believes is bad practice (excessive pay, corporate tax evasion, etc.) – AND the fact that he is giving the lion’s share of the vast wealth he has created to charity.

To expect him to stop speaking his mind, and to pander to the finger pointing is as likely as expecting him to sell the modest house he lives in and trade up for a mansion in Beverly Hills.

Posted by jgalt2010 | Report as abusive
 

Shareholders as shareholders are not officers; they generally don’t run big public companies; and unless someone has some real, solid evidence otherwise, I have no reason to believe Warren Buffet ran Moodys, or Goldman. He is not an officer of these companies and he is a minority shareholder.

He may have better access to officers than a guy who owns 1000 shares, but shareholders, absent more, BY DESIGN have no liability for the companies they own and they have at risk only their investment. It’s really that simple. That’s the genius of the corproate structure that allows people to invest with confidence.

I’ve owned stock in Coca Cola for years. I read the annual report and pay some attention to what they are doing, but I have NO say in how the company is run except for voting on a few annual proxies to which I hardly pay attention, anyway.

This is a red herring article and Buffett should never have been called upon to testify.

Posted by bobw1 | Report as abusive
 

Agree with common sense.

Posted by wbig | Report as abusive
 

Buffett’s PR disaster
He may be passing the buck along with the other financial guru’s.
After all, if my memory serves me correctly, one of his companies is a Re-Insurer and as with the few other Re-Insurers, they may be on the hook for house and home with the present financial meltdown, a similar situation to the underwriters of asbestos policies.

Posted by The1eyedman | Report as abusive
 

@ common_sense: Obviously consumers have some responsibility, but you are completely wrong in your view. Consumers rely on professional services to guide them in most investment decisions: people do not have the time to become experts themselves, so the system is set up so they have access to experts. When the system lets the consumer down (as it obviously did in this situation), then the consumers aren’t to blame- the supposed experts are.

Posted by 7jcjg | Report as abusive
 

Mr. Buffet sat on the board of Coca-Cola for years and he never stood up to contradict the company when they continuously denied any worldwide labor, human rights and environmental abuses (see http://www.killercoke.org). Resolution after resolution trying to place Coca-Cola on the right side of human rights was voted down by the board and the shareholders. When one shareholder was asked: “Doesn’t it bother you to make money off the misery of people around the world?”, he responded: “No.”

As we have seen in mining, finance and oil, our country’s corporations are guilty of destroying people, our economy and our environment, all in the quest of huge profits, despite what it does to our society.

Posted by Lromfried | Report as abusive
 

That website was http://www.KillerCoke.org

Posted by Lromfried | Report as abusive
 

Buffet is apparently just another sociopath running Wall Street…

Posted by mckibbinusa | Report as abusive
 

The very wealthy, i.e., Mr. & Mrs. Privileged Class (PC), simply don’t live in the same world as we do, i.e., Mr. & Mrs. Middle & Working Class (M&WC)…although each of them likes to think of himself as wearing the mantle of a Mr. Wise Everyman who…even though often quite wealthy…is still widely admired and respected by Mr. & Mrs. M&WC for his ability to “feel the pain” of Mr. John Q. Public, i.e., feel the pain of Mr. & Mrs. Average American (or European or Asian or whomever).

It is likely that the subject of this article thinks of himself in that way also. Likewise, the former head of the Federal Reserve. Likewise, the head of Toyota. Likewise the head of BP. Likewise “whomever”.

However, they feel neither pain nor guilt.

The fact of the matter is that these extremely wealthy people have forgotten what “pain” is (or never experienced it in the first place). Their view of the world is from a protective bubble. That’s just the way of it though. That’s simply a fact that cannot be changed.

If and when the wealthiest people in the world give away their wealth, we here at our M&WC Disabled Veterans’ Research Group (where “pain” is quite familiar) will take them and their financial and other prognostications seriously…and give them the respect and admiration that they crave—even more than they crave money.

Posted by OKJ1 | Report as abusive
 

Everyone has a bad day—just don’t do it on National TV.

Posted by remmington | Report as abusive
 

@7jcjg: that is an utter dismissal of personal financial responsibility and a statement indicative of your average american’s attitude when it comes to their role in the subprime crisis and great recession.

You do not need to be an expert to realize that putting zero down on a $300k loan with an adjustable rate (when rates are exceptionally low and have no where to go but up) simply by providing a stated income is a bad deal with the potential to be fiscally disastrous. Especially when housing values were going up 20% a year, did anyone with an ounce of common sense think this was sustainable? Did we forget our basic history about bubbles?

What it comes down to is this: people wanted a massive house without having to put anything down on it (having to work for it). Everyone got caught up in it, because everyone was making money off of it. Whether it be the borrower getting the huge house, the originators getting commmissions off new loans, fannie/freddie/banks repackaging and reselling, secondary market investors buying up MBS’s, etc. When everyone is making money, no one wants to stop and ruin the party.

The best lesson of the Great Recession will be lost to those who need it most: the one of excess of the american consumer who played a huge role in this disaster. We do a disservice to ourselves when we dont admit each our individual roles in this, and we are doomed to repeat it because of this.

Posted by common_sense | Report as abusive
 

Everyone did not get caught up in it. I did not, but I wished I had, because I wanted in early in the game before the huge run up in house prices. But I had the bad luck of not running into one of the guys who was handing out loans. I did buy a house, one I supposedly could afford according to the strict rules they had about how much I could spend on house and how much I had to devote to other things, that did rise in value, and has fallen back, but not to the level I bought it at. You may think I am lucky, but I would have liked to have a nicer house and would have committed more of my income for one.

Posted by AmericaninCan1 | Report as abusive
 

@common_sense –

There is no denying that hundreds of millions bear responsibility in this mess.

Still, the bond ratings agencies were and are extremely negligent and incompetent. Why is it that ratings downgrades always seem to come after collapses? Maybe most people don’t know very well how bonds will perform but most people aren’t paid billions of dollars a year to know.

The ratings agencies have a duty to unwrap each bond offering that they are rating, and not stamp as AAA things that they do not understand. Ratings agencies whored themselves out to Wall Street, essentially awarding high ratings to in exchange for business. Disgusting corruption. If you simply give AAA to every MBS, what on earth are you doing to earn your hundreds of millions in fees?

Presently, huge questions loom over municipal and sovereign debt, and yet exquisite ratings are everywhere.

I would suggest a universe of a number of ratings agencies where the ratings agencies are scored based on the accuracy of their ratings. Those who are more accurate are awarded more business. Competition is in any case coming presently from Bloomberg.

Ultimately, we are the fools for enshrining this cartel of laziness and conflicted interest in statute.

Posted by DanHess | Report as abusive
 

@common_sense

You are correct in that the end user (the borrowers) play a large role in America’s financial condition.

But a couple of things:

1) The vast majority of abuse of the “no doc” system you describe was performed by professional abusers (flippers), not traditional families who saw an extreme opportunity to purchase property in an over-heated market. Traditional families are, by and large, sticking with their purchase, often renegotiating the terms of their mortgages. Those that walked away were those who didn’t give a damn about the effects of their action: Flippers who got the property for nothing down along with several other properties, and who never committed to the agreement they had with the banks.

2) Where did these “investment vehicles” come from? Are you saying that if Wall Street had not conjured up the MBS market, that traditional families would have gone out so far on the limb, all by themselves? Are you saying that the availability of “no doc” loans from well-established, well-trusted institutions that have traditionally advised individuals as financial experts should have been deeply analysed by these commonfolk who simply wanted to provide a stable place to grow for their families? That these commonfolk should have suddenly developed some sort of protective financial instinct where none existed before? That these same commonfolk could then, after reading all of the documents available and conferring with second- third- and fourth-party financial advisors, as any serious investor would do, make an informed decision about whether their taking advantage of the opportunity would come back to haunt them? You figure the normal, non-financially-savvy individuals could have and should have done that? And you then claim that their education would have been sufficient for them to become wise real estate investors?

You’re wrong. Just like I would be wrong if I expected you to understand how posting on this message board has placed you at risk in the online jungle. Even if you read a bunch of blog posts on the topic and spoke with several Internet “experts”, I don’t think you could fully appreciate just how dangerous interacting on public boards is. You just couldn’t appreciate it without a lot more experience, after you became aware of the danger.

Same goes for the families who took the long-awaited opportunity to finally gain some stability in their housing situation. There is simply no way at all that a normal person without previous financial industry experience could possibly fully appreciate the risks of obtaining a “no doc” loan. The banks and mortgage companies that offered them were taking advantage of that ignorance, and THEY have most of the blame for the failure of those instruments to provide what those who purchased them WITH GOOD INTENTIONS. Flippers can go f**k themselves. They aren’t hurting. It’s the traditional families who got caught up in this that are hurting.

And the reason they are hurting is because their trusted advisers sold them down the river for a pocket full of silver.

Posted by Stupidscript | Report as abusive
 

This post is one of the stupidest things i’ve read.

If a bunch analysts screw up on rating Mortgage bonds…why is it remotely the fault of a shareholder in the company?
If instead of Buffett had it been Calpers or Fidelity with the 13% stake in Moody’s would you care?

Moody’s stake represents about 1/400th of assets at Berkshire. What do you expect him to do…review every single one of thousands of Sovereign, Munis, Corporate & Structured Credits it rates every year?

Buffett conducted himself allright. Angelides and his fellow buffoons just want to be on TV..trying to grandstand every witness about how dumb they were.

Posted by raghuveern | Report as abusive
 

Salmon get a grip. Buffett would be nuts to to have you clean up after his dog, let alone listen to your ridiculously uninformed drivel. You are angry because you are poor, ignorant and feel the world is against you.

Posted by CoolHand | Report as abusive
 

Let’s be real,
Buffett got wealthy and continues to get wealthy by his connections and inside track into the game. He is not going to burn those bridges by exposing their game plan.

As long as they stay within the razor’s edge of the law – all is good…. in their eyes.

Posted by Butch_from_PA | Report as abusive
 

@CoolHand –

Don’t be a hater. Felix has a point.

Buffett is looking like Baghdad Bob with his breathless defenses of companies that helped cause the financial crisis.
http://www.theodoresworld.net/pics/1108/ BaghdadBobImage34.jpg

Although much of what comes out of Buffett’s mouth lately is ridiculous, he is still a saint in my view for his massive charity and past efforts at investor education.

Posted by DanHess | Report as abusive
 

I would ask this:
1) does Buffett own the stock or does his company?
If it is the company he has a feduciary (sp) duty to the company (Berkshire)not to trash Moody’s in public no matter what his personal feelings are.

My own personal view is that the man isn’t getting old very gracefully. his investment skills have dropped (he did buy a few things at the peak). Now he’s speaking for derivatives when he has been against them in public (that would lower the value of his Goldman stake). so he clearly will fudge when it cmes to his own/compnay income.
Comment one could apply to goldman and derivates as well.

Posted by dbc | Report as abusive
 

@Stupidscript:

1. Where is your source on this claim? A huge percentage of loans originated during the subprime crisis were stated income loans to “traditional families” across all income levels. And traditional families are walking away from their homes at a high rate. Prime loan foreclosures have outnumbered subprime foreclosures for several months now. Morality of it aside, it can make good fiscal sense to walk away from an underwater mortgage, which is what many “traditional families” are doing now.

2. You miss the point with this entirely; the average consumer doesn’t need to know a single thing about the MBS market, as the financial sense of the home loan is only be a measurement of whether it makes sense to the individual. You do not accept or decline a mortgage loan based on who the originator will sell it to, who will package it or how it will be pooled, and who will buy that bundle in the secondary markets. You accept or decline a mortgage loan based on your personal income, credit, ability to pay, and personal financial situation. It doesn’t matter who buys and sells your mortgage after that, the only effect the secondary markets had on borrowers was to increase demand for those mortgages. This means pressure on originators to create more loans, but that pressure can be rendered moot by an informed consumer who doesn’t make HUGE financial decisions based on what the originator tells them. Originators are not experts on your personal finances, this isn’t their job.

This doesn’t require anything beyond basic common sense and basic financial sense. Don’t pay more than 1/3 of your monthly income on your mortgage. Do not take on a mortgage rate that adjusts when rates are low with nowhere to go but up, thus defeating the 1/3 rule. This is even spelled out in the loan docs, which may be long but I’d wager 99% of people never bother to read them. If you’re going to take on $300,000 worth of debt, it behooves you to read the documentation. It is not complicated, and its literally spelled out in the loan docs thanks to the Truth in Lending Act and HOEPA (what $10,000 will do under the loan terms you accepted, with examples of what your payment will do if rates go up). But all the regulation in the world doesn’t do any good if people don’t take personal responsibility and read the documents.

So now we have a situation where people who were conservative with their money having to bailout those who were reckless. Those you didn’t bother to read the loan documentation, those who wanted something for nothing. This is unacceptable.

Posted by common_sense | Report as abusive
 

I viewed the video of the testimony on cspan.org – a great site! My post analyzes several pieces of Buffett’s testimony.

All the items below start with what Buffett said, followed by my own commentary.

1. Moody’s is guilty of not seeing the bubble in advance, “just as 300 million Americans did not.” They are not guilty of a crime or premeditated market manipulation. Buffett also refers to his statement at his 2007 shareholder meeting where he referred to real estate as a “bubblette” not a “four-star bubble” as it turned out to be.

My Thoughts: Buffett is also on record several years ago saying that “derivatives are weapons of mass destruction.” So we know he isn’t totally clueless. He also runs companies and has contacts and insights far superior to most other people’s. Moody’s, for its part, was responsible for making the tough calls was paid billions to do so and had greater visibility into these securities than most (one assumes, else how could they be putting AAA on them?). That both of these parties “completely missed” the bubble and are just as clueless as you and me are hard to believe. I think the answer is that it was too profitable in the short-term to make the tough calls, so they didn’t.

2. All debt issuers are required to obtain a rating from both Moody’s and Standard & Poor’s. Hence it is a monopoly, and one that uses the “issuer pays” business model. When Angelides probed him about the US Gov’t proposal to have an independent commission pick out raters instead of the debt issuer, Buffett punted and said he didn’t know.

My Commentary: Enough said. One would think that either Buffett or Moody’s might have an opinion on the business model underlying their investments and how to improve it????

3. Buffett says two interesting things (my paraphrase),

[a CEO who messes up the place and still takes home $100 million is part of a crazy structure and boards should be held accountable].
[A CEO cannot run a financial company unless they view themselves as the chief risk officer].

My Commentary: When Buffett invests $10 billion in a company (Goldman) that is walking anathema to two core tenets he references in Congressional testimony, it suggests that Buffett doesn’t believe these tenets are critical to investing success. Then why would he say them???

4. Buffett actually says that high prices are a “narcotic” and thus, no one is responsible for the bubble (when asked who was responsible, he didn’t have an answer, so I presume he believes no one is responsible).

My Commentary: So what Buffett is saying that if prices are going higher, that this is a narcotic, its human nature, so its OK for rating agencies to start handing out AAA ratings like popcorn? And when asked how to improve this situation for the future, he won’t state an opinion? He is no different from any other Wall Street hack that sits in the testimony chairs.

Posted by crew71 | Report as abusive
 

Yes crew,,,exactly.

And common sense you are not paying attention … you should are speaking about YOUR mortgage and YOUR knowledge. The banks clearly have an obligation to inform their cuastomers of risk and also to handle mortgages with their own long term risk in mind. that is their responsibility.

I imagine there were a number of greedy homeowners that knew exactly what they were getting into… but many were sold a bill of goods by crooked lenders and mortgage brokers and operations, with lenders who were working with “market makers” and banks to keep the bubble rising and to ensure that there were plenty of higher risk mortgages.

The banks and lenders paid the brokers to make the mortgages, but were still responsible to ensure that there was credit and ability to pay. Many did not and although in some cases it might have been pure negligence it wasn’t always. Ask those whose mortgages inflated their income. how is that possible when an income/tax statement is required. Credit checks required?

It is more likely, however and should be investigated throughly. that bankers and lenders were also in a ring of a long line of greedy criminals. They were hiding under their white collars making the market for mortgages that were designed to fail and DID fail.

Those same mortgages also inflated the market and when there were no more suckers to fleece, and the market drying up, the criminals started flipping homes themselves and making nefarious deals with lowlifes who would and should have never been given a mortgage. That’s fraud by all counts and thus far only a few brokers have had their hands slapped and very few have gone to jail.

That these types of mortgages were put into the hands of “sophisticated financiers” who “somehow” knew that they were trash and thus higher risk needs to be addressed. Sadly the shredders have been busy lately and it is often impossible to trace the sources of the mortgages and original lenders… that’s how often the trash got traded and reused and marked as AAA… over and over again.

The CDO’s and derivatives are like crack, it’s true. How addicted everyone was (is) is apparent, but allowing those addicted to say “we participated in things that were clearly wrong and have reason to regret” and feel exonerated, when clearly they knew the junk was junk… I wonder how much Buffet knows of this and is trying to wash his hands of before the prosecutions begins.

let’s not blame that on people who actually wanted a home… ok?

Posted by hsvkitty | Report as abusive
 

I thought Born’s questions to Buffet were excellent. She was calm and concise, and he reacted with clear and useful answers.

Posted by bob33 | Report as abusive
 

*** The very wealthy, i.e., Mr. & Mrs. Privileged Class (PC), simply don’t live in the same world as we do, i.e., Mr. & Mrs. Middle & Working Class (M&WC)…although each of them likes to think of himself as wearing the mantle of a Mr. Wise Everyman who…even though often quite wealthy…is still widely admired and respected by Mr. & Mrs. M&WC for his ability to “feel the pain” of Mr. John Q. Public, i.e., feel the pain of Mr. & Mrs. Average American (or European or Asian or whomever). ***

You’re absolutely right. As one of the richest men in the world who yet still lives a very modest lifestyle, living in the same modest home he bought for $31k fifty years ago, he probably doesn’t have a lot of empathy for the utter morons who bought houses at seven times their annual salary, motivated by crass materialism and the need to keep up with the Joneses.

I’m sorry, did I say “utter morons”? I mean, good, decent, common folk.

Posted by InmanRoshi | Report as abusive
 

More hoighty less toighty with Buffet’s next subpoena, maybe?

Posted by paperoses | Report as abusive
 

Warren Buffet, like the other hypocritical thugs on Wall Street, were perfectly aware of the direction the country was headed and took full economic advantage of the less informed. The poor slobs who entered the housing market on shaky financial footing were conned into jumping on the elevator of ever increasing home prices, not knowing that the means for the support of the lifestyle was nearing it’s end. By that I mean we were in the process of winding down the economy by eliminating the middle class and exporting a very large portion of our manufacturing base. Given that brief, the sharks conjured up a scheme to plunder the unaware and pass the eventual fall-out back on the US taxpayers. Ultimately, anyone short of a comatose drunk realized what these players were doing, but too late the money had already been stolen by these slick thugs. Now they want us to believed they had nothing to do with the engineering of the misery they have wrought on the people whose future was drastically altered by their game playing. To them the “stupid” people who became caught up in this tragedy were themselves looking for a quick gain, and were therefore exposed as prey to be consumed.

Posted by sicnarfe | Report as abusive
 

Criticism of Warren Buffet is just a sign of the times and the fact that it’s not ok to make money anymore. It’s not that he used to make money out of Coca-Cola and now he’s making money like a “banker”. Coca-Cola, like a big mortgage, is bad for you. People make fortunes from selling you things when you should know better, whether it’s a cheeseburger that gives you a heart attack, sneakers that were made by a child or a mortgage that you can’t handle. This crisis, like all the others, was just human nature.

Posted by CityReactionary | Report as abusive
 

This issue of “who is at fault” can be looked at in terms of “who knew what and when did they know it.”

Traditional homebuyers that stretched their mortgage for more house, right now, in hopes of making money down the road for retirement bear some fault due to their personal greed.

Contrast this with the mortgage supply chain of government agencies (Fannie/Freddie/GNMA), bank aggregators, bank originators, and brokers. The intermediaries in this chain knew that the paperwork was getting sloppy, knew they were introducing exotic mortgages never before seen, knew they were going to lay off the risk on someone else, knew they were lying on applications without knowledge of their client, and in the case of the large institutions, knew that the government would bail them out if this blew up. Add to this that the intermediaries are sophisticated professionals, not the average greedy homeowner.

To assign equal culpability to homeowners and the mortgage intermediaries that enabled this mess stretches the bounds of credibility. Anyone who does is a shill for the industry.

Posted by crew71 | Report as abusive
 

A final note about one set of intermediaries in particular, the investment banks.

All this BS “risk-taking” on Wall Street started when the investment banks went public. Prior to that they were partnerships, where the partners’ money was at risk. When your own money is at risk you behave a lot differently. As proof, look at Brown Brothers Harriman, the last surviving old-time partnership on Wall Street. You’ve never heard of them, and you’ve never heard of them getting burned in the mortgage business? My point exactly.

In the mind of a public investment bank CEO are two dominant principles:

1. My money is not at risk, so swing for the fences to make it big.
2. The government will bail me out if it goes wrong because my company is so big and important.

Thought Number 1 makes the banks just like any other public company out there. Its Number 2 that makes them think they are “doing God’s work.”

People do what their incentives lead them to do, and the two incentives above are responsible for much of this mess. We need to fix it!!!!!

Posted by crew71 | Report as abusive
 

I don’t think you understand what it means to own and run a business: http://www.jamessong.com/2010/06/04/call ing-out-the-imbeciles/

Posted by Songhypnosis | Report as abusive
 

I can see it now…

Warren Buffett comes crashing through the gates at Moody’s franticly waiving an envelope with some numbers scrawled on the back.

“WAIT! HOLD ON! I’ve been running the numbers on your ratings for the Mortgage Backed Securities!”

“But Mr. Buffett, those formulas are secret..”

“I snuck in here the other night because I was worried that things were not right. It turns out they aren’t. See, you used the Gaussian Copula method of estimating correlations of default. But that has historically underestimated the correlations. We need to stop this all now before my shares go down in value! I might even be *shudders* DRAGGED BEFORE CONGRESS!!”

NOOOOO!!!!

Posted by bebothoughts | Report as abusive
 

This is a Witch Hunt. Congratulations ! we all have 20/20 hindsight. Got to have somebody to blame.

Truth is we were all blind while we took on mortgages we couldn’t afford, elected hundreds of lawyers who knew more about pontificating then business, and yes those who worked in the industry made money off the origination and sale of mortgage backed securites. If they had a clue they would have made a fortune shorting them as a very select few did. Let’s nuke this planet to keep us from making the next dumb move.

Posted by MMQB | Report as abusive
 

Amazing comments. Did these people watch the testimony or just listen to the not so informed commentators? Buffet gave the same type of performance- witty, insightful, honest, informative-that he gives to 40,000 traveling around the worl to Omaha once a year. He did well and should be listened to again by most commentators above and listen to what he really says.

Posted by JCSS | Report as abusive
 

Felix – you write great stuff, but a big part of the reason I enjoy your blog is the educated commentary from your readers. What about selecting a Felix Top 20 comments every week to display…

Posted by Soho | Report as abusive
 

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