2010-06-04

Socionomics—The Fall of Warren Buffett

This week Buffett defended the ratings agencies to Congress.
Gasparino Deconstructs Buffett's Hypocrisy
Now this:
Buffett Expects ‘Terrible Problem’ for Municipal Debt
Warren Buffett, whose Berkshire Hathaway Inc. has been trimming its investment in municipal debt, predicted a “terrible problem” for the bonds in coming years.

“There will be a terrible problem and then the question becomes will the federal government help,” Buffett, 79, said today at a hearing of the U.S. Financial Crisis Inquiry Commission in New York. “I don’t know how I would rate them myself. It’s a bet on how the federal government will act over time.”
You own Moody's my good man, why don't you have them work on the problem?
“It would be hard in the end for the federal government to turn away a state having extreme financial difficulty when they’ve gone to General Motors and other entities and saved them,” Buffett told shareholders in Omaha, Nebraska, at Berkshire’s May 1 annual meeting. “I don’t know how you would tell a state you’re going to stiff-arm them with all the bailouts of corporations.”
In my opinion, the public is not going to allow another bailout, not until the sky is falling. But, could Buffett have another reason to expect bailouts?
Buffett set up a municipal bond insurance company in December 2007 as competitors, including Ambac Financial Group Inc. and MBIA Inc., struggled to maintain top ratings. Berkshire has scaled back sales as Buffett said the rates that bondholders are willing to pay don’t match the risk.
Why yes, he stands to lose hundreds of millions, if not billions, if municipal bonds go down.

Buffett owns the ratings agency, he owns the bond insurance company, he says its a terrible problem, and he expects a bailout. My prediction is that Buffett finishes this fall in social mood as a villain, rather than a hero.

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