This Is The Letter Warren Buffett Should Have Written To The U.S. Government

Barry Ritholtz, The Big Picture | Nov. 17, 2010, 3:30 PM | 6,968 | comment 29

For many years, I’ve been a fan of Warren Buffett’s long term approach to value investing. Understanding the value of a company, regardless of its momentary stock price, is a great long term investing strategy.

But it pains me whenever I read commentary from Buffett that glosses over reality or is somehow self-serving. His OpEd in the NYT today – Pretty Good for Government Work – paints an artificially rosy picture of the Bailout, ignores the negatives, and omits his own financial interest in government actions.

What might he have written if Sir Warren was dosed with some sodium pentothal before he sat down to pen that “Thank you” letter? It might have gone something like this:


DEAR Uncle Sam Sucker,


I was about to send you a thank you note for bailing out the economy . . . but then some nice men dressed in Ninja outfits came in and shot me full of truth serum. That led me to make one more set of edits to my letter thanking you for saving the economy.

It also helped me recall some things I seemed to have forgotten in my other public pronunciations about the bailouts.

I suddenly recalled who it was who allowed the banks to run wild in the first place: You. Your behavior before, during and after the crisis was the epitome of a corrupt and irresponsible government. You rewarded incompetency, created moral hazard, punished the prudent, and engaged in the single biggest transfer of wealth from the citizenry of the United States to the Wall Street insiders who created the mess in the first place.


Before I get to the bailouts, I have to remind you that in:

  • 1999, you passed the Financial Services Modernization Act. This repealed Glass-Steagall, the law that had successfully kept main street banking safely separated from Wall Street for seven decades. Even the 1987 market crash had no impact on Main Street credit availability, thanks to Glass-Steagall.
  • 1997-2010, you allowed the Credit Rating Agencies to change their business model, from Investor pays to Underwriter pays — a business structure known as Payola. This change effectively allowed banks to purchase their AAA ratings, and was ignored by the SEC and other regulators.
  • 2000, you passed the Commodities Futures Modernization Act. It allowed the shadow banking industry to develop without any oversight by the Commodity Futures Trading Commission, the SEC, or the state insurance regulators. This led to rampant creation of credit-default swaps, CDOs, and other financial weapons of mass destruction — and the demise of AIG.
  • 2001-04, the Fed, under Alan Greenspan, irresponsibly dropped fund rates to 1%. This set off an inflationary spiral in housing, commodities, and in most assets priced in dollars or credit.
  • 1999-07, the Federal Reserve failed to use its supervisory and regulatory authority over banks, mortgage underwriters and other lenders, who abandoned such standards as employment history, income, down payments, credit rating, assets, property loan-to-value ratio and debt-servicing ability.
  • 2004, the SEC waived its leverage rules, allowing the 5 biggest Wall Street firms to go from 12 to 1 to 20, 30 and even 40 to 1. Ironically, this rule was called the Bear Stearns exemption.

These actions and rule changes were requested by the banking industry. Rather than behave as adult supervision, you indulged the reckless kiddies, looking the other way as they acted out. You were the grand enabler of the finance sector’s misbehavior. Hence, you helped create the mess by allowing the banking sector to run roughshod over decades of successful constraints. (Kudos again on that).

There were voices warning about the upcoming crisis, but you managed to turn a deaf ear to them: Warnings about subprime lending, problems with securitization, against the false claim that residential real estate never went down in value, or that the models forecasting VAR were wildly understating risk. An economy driven by growth dependent upon credit fueled consumption was unsustainable, and yet you encouraged that reckless credit consumption. The compensation schemes for Wall Street were hilariously short term (ignored by you); the crony capitalism of Boards of Directors that undercut market discipline was similarly ignored. You encouraged the hollowing out of the US economy, allowing it to become increasingly “Financialized” at the expense of industry and manufacturing. What was once a small but important part of the economy became dominant, yet unproductive, with your blessing.

Bottom line: You were at a loss for understanding the many factors that led to the crisis in the first place.

When the crisis struck, you did not seem to understand the role you should play. Instead of stepping up to halt the financialization, to unwind it, you gave away the shop. You failed to extract concessions from firms on the verge of bankruptcy. Your negotiating skills were embarrassing. In the face of meltdown, you panicked.

You could have undone the decades of radical deregulation at that moment. You could have fired the incompetent management, wiped out the shareholders who invested in insolvent companies, gave the creditors and bond holders a major haircut for their foolish lending. Instead, you rewarded them for their gross incompetence.

The solutions you ran with were ad hoc, poorly thought out, improvised. You crossed legal boundaries, putting the Fed in the position of vio0lating its charter and exceeding its mandates. You created a Moral Hazard, the impact of which may not be felt until decades in the future.

Very few of your senior elected and appointed officials understood what was going on.

Rather than offer an intelligent response to the crisis, you delivered brute force: Trillions of dollars were thrown at the problem, papering over its symptoms but not its underlying causes.

Well, Uncle Sam, you delivered a motherload of cash. Considering the dollar sums involved, your actions were remarkably ineffective. What was left over afterwards was a wildly over-leveraged consumer whose credit limits had been reached; State and municipal budgets were heavily dependent upon that excess consumer spending, creating huge budget holes because of it. Net net: The resultant economy was in the worst recession since the Great Depression.

As a student of the Great Depression, Ben Bernanke should have had the best grasp – but his bailout of Bear Stearns revealed him to be just another banker, intent on saving the banks – banking system be damned. To give you a clue of exactly how lost Hank Paulson was, he spent his time praying, and creating documents that exempt himself personally for liability. He’s from Goldman, so we know that “team first” ain’t exactly his style. Tim Geithner, who did such a stupendous job overseeing the banks in the first place, was n way over his head. And while I never voted for George W. Bush, I give him great credit for hiding under the bed and pretty much staying out of everyone else’s way. I would call him clueless, but that wouldn’t be fair to the legions of clueless around the world.

Sheila Bair grasped the gravity of the situation earliest, and put numerous failed banks through the insolvency process. If we were smart, we would have allowed her to work her way through the entire finance sector, effecting a GM-like prepackaged bankruptcy for Citigroup, Bank of America, Merrill Lynch, Morgan Stanley, AIG, etc. It would have been painful as hell, but we would be much better off had we allowed her to tear the band aid off quickly. Instead, we are suffering through a death of a 1000 cuts, Japanese style.

I would be remiss if I failed to mention my personal positions in this: I made a killing in Goldman Sachs and GE. My investments in Wells Fargo would have been a disaster if not for you. Don’t even get me started with me being the largest shareholder in Moody’s – that was some clusterf#@k. And considering all of the counter-parties that Berkshire Hathaway has, we risked being just another insolvent investment firm along with everyone else had nothing been done.

So I must say thanks to you, Uncle Sam, and your aides. In this extraordinary emergency, you came through for me — and my world looks far different than if you had not.

Your grateful but wide-eyed nephew,


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10 Responses

  1. Neil ,,

    I’m begging for you to properly index this site to make it more searchable… It is a treasure trove but finding the treasure is nearly impossible..


  2. I believe we must start at our LOCAL COURT HOUSE and meet with the land records director or persons in charge of recording liens, etc. Ask them when did they agree to outsource the recording of deeds and deeds of trust to MERS?, AND demand to see what procedures they have in place to protect the integrity oc the system. how do they protect the trnasparency and legallity of the land records.

    Why is it Ok for foreign nd unregistered entities to file fraudulent appointments and substitution of trustees?

    why are the court houses allowing the theft of our homes, after all they work for us and with our tax dollars

  3. can we get Mr. Darts email or business address ?

    I would love to send him a letter commending him for being fair and just. For having the COJONES ti stand up to the thieves. I just sit here thinking about all the judges that failed to do their job in their alleged courts of equity and signed off of fraud ridden foreclosures.

    When are we going to force tge bankers to sell off their corrupt, inept and criminal servicing units?

    When are we going to see the rest of the sheriffs of the country start working for the residents of their counties and not for the firms that have systematically evaded paying taxes to their counties?

    Just wondering when we all are going to rise up and start demanding our rights to be protected?,

    Can some one guide me and show me where in the U.S. Constitution the criminals, the bankers, the foreclosure mill criminals have more rights than we the people?

    Can someone tell me?

  4. Nauseating but awesome… How can we stop this? I feel so powerless and victimized as an American. If only SOMEONE would start sharing some ACTION PLANS. We have great resources to show us the corruption, NOT so many to direct us on WHAT to do about it.

    Thankfully, there a few activists with the resources to make movies and tv shows… but that’s not enough.

    We need to have a place to DIRECT our collective angst for the good of change. Elections are too far between, and far to corrupt to rely on.

    ***WHAT CAN WE DO?***


    Sheriff Who Refused To Evict Foreclosed Homeowners Forced To Resume

    CHICAGO — An Illinois sheriff who halted foreclosure evictions last month because some bank employees weren’t following the proper procedures said Friday he’s been forced to order his deputies to carry them out, but he will continue investigating the matter and could charge banks and their employees with crimes.

    Cook County Sheriff Tom Dart said he is only ordering evictions to resume because county prosecutors told him that he was legally bound to carry out foreclosure eviction orders signed by a judge.

    “For the people who have been involved with this and think now that because the (Cook County) State’s Attorney’s office has ordered me to go ahead with the evictions that everything’s fine . . . No, we are going to be looking at you for criminal violations,” Dart said. “You may have got through one storm now, the other one is coming.”

    Dart singled out Bank of America, JP Morgan Chase and GMAC/Ally Financial last month for problems with eviction notices. He said Friday that investigators continue to find problems with bank employees signing off on foreclosure documents they haven’t read, although he did not single out individual companies.

    “When we asked a month ago . . . send me an affidavit to say that everything was done legally, not one organization, law firm handling these cases, not one of them sent in one document,” Dart said. “Not one, and they had over a month to do it.”

    The sheriff said that if anything, his office’s investigation has shown the problems that prompted the moratorium were even more widespread than he first thought.

    “We are being overwhelmed with abundant evidence that there are irregularities,” he said, adding that just a cursory investigation by his financial crimes unit has shown problems in eviction order after eviction order. “Irregularities are going on all over the place here. It’s the norm.”

    Tom Kelly, a spokesman for Chase, said that steps have been taken to ensure that foreclosure documents don’t have any problems in anticipation for the resumption of evictions later this month.

    Gina Proia, a spokeswoman for Ally Financial, said her company has been examining foreclosure documents carefully and has not found any cases of inappropriate notices being sent.
    Story continues below

    A spokesman for Bank of America did not immediately return calls for comment.

    Dart said investigators found clear evidence of “robo-signing,” in which lenders’ employees sign scores of documents in a day that they could not have possibly have read to determine whether the foreclosures were legal. Investigators have, for example, come across documents signed by employees who have admitted in depositions in other parts of the country that they were taking part in “robo-signing,” he said.

    He also said that law school students have agreed to examine a total of 2,200 cases that have been submitted to his office, including the 1,800 that are ready for evictions to be carried out, to determine whether there were any irregularities. Cases where problems are spotted will be investigated further by his office to determine if criminal charges should be filed, he said.

    Dart also hinted that just because he is being forced to resume evictions, the banks shouldn’t expect his deputies to start carrying out the 1,800 evictions he said are ready to be executed.

    “We will move ahead with those cases, but we’ll do it in a thoughtful way,” he said, adding that the deputies would do things like put notices on doors and suggesting to homeowners places they might go for legal help. “We’re going to make sure all their rights are being looked after and we are proceeding in a lawful way where the due process people deserve is being looked after.”`

  6. Kudos to Barry. I’m sure he is not getting any gift basket from Warren for the holidays.

  7. Now I know (which I assumed) why Warren Buffet and Bill Gates (who also enjoys government favors) became philantropist in the last two to three years.

  8. Well said and appreciated.

  9. Isn’t Warren Buffett a close friend and advisor to Mr. Obama? That really does not look good. Surely, the President is not so stupid that he is not getting the gravity of the government’s situation. I know Europe and Asia see exactly how bad our financial sector has acted. Bernanke is still pouring more money into the worthless mega banks. Europe and Asia are not going to do business with us if we let Wall Street get away scott free. We need much more regulation and bring Glass-Steagall back. In addition, why do we have wars and not social programs for the people of the US. Don’t we count anymore? They think of us as dumb sheep who don’t know what is going on and do not have the political will to do anything about it.

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