Morning Links 4-26

April 26, 2010

Buffett’s latest betrayal: Tries to water down derivatives regulation (Paletta/Patterson, WSJ) Though he’s long inveighed against derivatives as “financial weapons of mass destruction,” Buffett is lobbying hard to water down rules that would require derivatives traders to hold collateral against their positions. It’s a very sensible rule that would make derivatives trading less systemically risky, but it would also make it more expensive. Which is the point. “End users” are fighting derivatives regulation because unlike other financial contracts, they’re able to trade derivatives with far more leverage.

Buffett’s game has always been about float — he gets cash from a counterparty to enter a contract and can invest it as he sees fit until the contract comes due. Hopefully that’s never, as in the insurance business: if you underwrite insurance risks well, you’ll never face claims. But with insurance, you have to hold sufficient capital against the risk you’re underwriting. With derivatives you don’t. True, Berkshire has lots of cash so likely isn’t a systemic risk.  But changing the rule for Buffett means changing it for others who may not be so stable.

Don’t be surprised by his stance. We’ve come to expect Buffett to lobby for his own interests even when it conflicts his own folksy wisdom. He’s said bailouts are bad for the system, yet he lobbied very publicly for them and benefited more than anyone. Also, he fought the very sensible bank tax and was the progenitor of PPIP, which would have been a naked giveaway to banks had it not died.

Victim in Goldman case was a yield chaser (Buhl/Cassidy, Atlantic) Teri is no friend of investment banks, yet she makes a great point that it’s hard to find the “victim” in the Goldman/SEC case since IKB was desperately chasing yield. The real victims, of course, are taxpayers. We were left holding the bag when the casino that made IKB’s bets possible turned up insolvent. Unregulated side betting should be outlawed. It already is, in fact, via bucket shop laws. Yet in their zeal to deregulate derivatives markets, Greenspan/Summers/Rubin/Levitt thought it wise to exempt derivatives from such laws…

Best hope for Greece: Minimize the losses (Ewing, NYT)

More signs of a bubble in Chinese real estate (CR)

An uneasy marriage of the cultish and the rumpled (Clifford, NYT) BW as gobbled up by Bloomberg…

U.S. to push for global capital rules (Braithwaite, FT) It’s good news that the administration is pushing tougher global capital rules than some other countries would like. Great to see Obama leading a race to the top.

VIDEO: The story of a giant leopard seal and a National Geographic cameraman (YouTube)

U.S. vs. Russia (imgur)

Protesting Arizona’s new immigration law… (imgur)

One comment

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For a longtime Buffett follower, today’s shareholder meeting was truly heartbreaking. In Warren’s defense, loyalty can also be considered a virtue, and Buffett was nothing if not loyal to Goldman Sachs.

But at a time when we really need an elder statesman to help sort out the tolerable and very bad, because there was certainly some of both. Instead we hear that Goldman behaved admirably at every stage.

Munger at least had the decency to chide investment banks for their bad behavior. Buffett was willing to admit nothing of the sort at any point in FIVE HOURS. When his interests were different, he has happily teed off re derivatives and poor ethics at investment banks.

Well we now have an idea what Buffett’s reputation can be had for in the market. More than zero but certainly less than the 1 billion he has earned from Goldman so far.

Posted by DanHess | Report as abusive