Partners - Stock market, economic and political commentary by Patricia Chadwick

Whom Do You Trust – Warren Buffett or The Federal Government?

Listening to Warren Buffett as he discussed Goldman Sachs on Squawk Box yesterday morning, I was struck by both his eminent business sense as well as his common sense. His assessment of the securities firm and its CEO, Lloyd Blankfein, was reasoned, and was based on his many years of dealing with the company as well as his own immensely sound and proven business acumen.

Mr. Buffett understands risk and how markets work. He knows that in the world of buying and selling complex financial instruments, responsibility is a two way street. Caveat emptor. The buyers of the instruments at issue were not naïve individuals, unfamiliar with the vicissitudes of the market; rather, they were sophisticated investors, looking for a risky investment with a kick. Mr. Buffett admitted to making mistakes of his own, to failing to see the bubble in the residential real estate market. It was reassuring to hear him make that admission.

What a far cry his interview was from the experience last week of listening to the many U.S. Senators (on both sides of the aisle) grilling Goldman Sachs employees. It was plainly evident that none of the Senators comprehended the financial instruments at stake. Rather they were grasping at headlines – grandstanding, haranguing and trying to intimidate – force feeding isolated words and phrases to make theatre and to obfuscate their own enormous culpability in the real estate bubble and its subsequent bursting. Unlike Mr. Buffet who readily confessed that he isn’t right all the time, not a single Senator admitted to pressuring the banks to relax mortgage lending standards. Nor did any of them mention Fannie Mae and Freddie Mac, for which they have oversight and which have been so preposterously mismanaged.

The Federal Government is powerful, more powerful than any corporation in this country. If it wants, it can destroy a company, because it has infinite staying power and no profit motive. That is precisely what it did to Drexel Burnham, to Arthur Andersen, to Lehman Brothers. It can create an environment that makes it expedient for customers to abandon a company and for employees to jump ship. And in that way it can bring down any company if it so chooses.

Rather than admit their own involvement in the global financial crisis, Congress and the White House appear bent on finding scapegoats. Wall Street is an easy target, and the most profitable of the Wall Street firms is the easiest and most expedient target. And Congress, given its miserably poor standing in the polls, is hoping that by vilifying the private sector they will find redemption. That will not work.

Financial reform is needed. The citizens of this country would be well served by thoughtful and reasoned legislation that would mitigate the risk associated with rampant leveraging. If Congress really wants redemption, let it admit its own errors and work together with the private sector in the best interests of the people it is supposed to serve.

November cannot come too soon.

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5 Responses to “Whom Do You Trust – Warren Buffett or The Federal Government?”

  1. Don Says:

    What utter drivel. Just another Wall Street paid shrill. Arthur Anderson, Enron, Drexel, etc. were large scale frauds that resulted in millions of innocent investors losing hundreds of billions of dollars because of the fraudlent and self-serving conduct of these and Wall Street fraudsters.

    One can only hope that Patricia Chadwick had 100% of her net worth tied up in Bernie Madoff’s ponzi scheme so she can truly reap the rewards she so richly deserves from the the Wall Street fraudsters she so stupidly supports.

    This is one author and her investment service that any investor should avoid like the plague. It is pretty obvious that this author has the ethics of the typical Wall Street fraudster. Doesn’t matter to them if you lose your life savings, so long as they can continue to make their fees and “get their share”.

  2. Jennifer Says:

    The rule of thumb for the investment is diversifying. I agree that AA, Enron, Drexel, etc are the results of large scale frauds, but it is neither fair nor correct to put everyone in Wall Street as a fraudster. People who fell for Madoff’s unreal (too good to be true!) return should have reflected on their investment choices before they put their entire savings in one basket. They thought that they were beating all the indexs and thought that they were getting ahead. That, to me, is a clear case of ‘greed’. I hate to disappoint you, but one thing for sure, I do not think that Patricia Chadwick would put 100% of her net worth in any kind of single investment. For that matter, no one with sound investment philosophy would.

  3. Ralph Hannon Says:

    I’m with Warren buffett, Jennifer, and Patricia Chadwick on this. I was having trouble coming to terms with how this was playing out. However, after mulling Patricia’s post my confidence has been restored. So, I picked up 100 extra shares of GS, and for good measure, $16,000 in CAIBX today. It’s always nice to buy on the dips!!

  4. Tom Says:

    Hey Don:

    Your comments are sheer demagoguery. You must have studied at the Bill Clinton School for Demonization.

    By any chance, did you vote for MaoBama?


  5. Bob Says:

    I think it was very irresponsible for a man with Mr. Buffets experience and status to come out and defend Goldman. Clearly either he is helping his friends on the street, helping himself and his $5 billion investment, or he is helping himself by condoning the kind of insider trading ponzi scheming culture which is wallstreet today. Consider the following:

    1.) Mr. Buffet says it doesn’t matter who is on the other side of the trade. I say True and False. Generally speaking no it does not. However when the guy on the other side of the trade picked the horses which are running the race then bets on them to lose (ahem isnt this insider information), isn’t this fraud and against the law? In my mind it is just a matter of time before Mr. Paulson gets brought up on charges for “stacking the deck” (How is it that he is allowed to take a position in an asset which he helped create and which he does not make a market in?). As I said, generally it doesn’t matter when ethical people are involved, but when Goldman knew the deck was stacked and did not disclose it to the unsuspecting buyers, then it is criminal fraud and people should be going to jail. Heck we put Martha Stewart in jail for making a lousy 100k from an inside tip. Paulson was actually on the inside, so what should his penalty be, what should Goldmans be?

    2.) Mr. Buffet is a master orator. Yes his arguments are well rehearsed and logical. Like any good salesman he tells you the obvious, but seems to leave out the damning evidence that his product stinks. I applaud his ability to manipulate so many, it is one of the things which has made him so successful. But cmon, with the visability this thing has on it, this time I think he stuck his neck out too far and now he knows it because this thing will be analyzed and the truth will come out and then Mr. Buffet’s credibility will suffer greatly. His publicist should be fired!