Warren Buffett’s reputation with the public at large is that of a wholesome, folksy, financial genius. Most people seem to think of him as an honorable public figure with plenty of wisdom to pass along regarding life and investing in the stock market. Before writing this article, I did not know much about Buffett other than the fact he owned Berkshire Hathaway and people seemed to love him. If you do some research, you will discover that Buffett is not a financial genius, far from it, but he is quite good at attaching himself to politicians.
Buffett is not a genius when it comes to picking stocks, but is arguably the best when it comes to using his relationships with politicians for personal gain. The financial crisis of 2008 could have been a disaster for Berkshire Hathaway if not for Buffett’s relationships with politicians in D.C. At the time of the “crisis,” Berkshire Hathaway owned stock in Wells Fargo, Bank of America, and American Express, and all of these companies were having serious financial difficulties, to the point of teetering on the brink of collapse. It was Buffett’s crony capitalism that saved 30 percent of Berkshire Hathaway’s stock portfolio.
In Peter Schweizer’s book, Throw Them All Out, Schweizer provides a detailed account of how Buffett lobbied for and eventually secured TARP funds for Wells Fargo, Bank of America, and American Express. What is even more eye-opening about Buffett’s actions at the beginning of the financial “crisis” is the stock transactions he made by buying $5 billion in Goldman Sachs, with an option to buy another $5 billion at $115 a share. Why would Buffett run into a burning building? Did he know something the average investor did not know? Yes, Buffett knew he would be able to push the Obama Administration and Democrats in the House and Senate to bail out Goldman Sachs and his other investments. Buffett was going to profit from the bailout while the average American would see his or her 401(k) wiped out.
On October 3, 2008, the Senate passed what became known as the Troubled Assets Recovery Program (TARP). The purpose of the $700 billion bailouts was to have the federal government, i.e., taxpayers, buy troubled assets from banks, hedge funds, and pension funds. When the TARP bill was first put to a vote, it failed. Days after the bill failed, Buffett held a conference call with Speaker of the House Nancy Pelosi and House Democrats during which he made it clear to those on the call that it was imperative that the bill pass or America would face the biggest financial collapse in American history. America was not in trouble, but Buffett was facing the prospect of losing billions. Buffett was well aware that if the bill failed again, Berkshire Hathaway’s aforementioned investments would tank, and he would lose billions. Of course, the passage of the bill, although not a windfall for the American people, would be a financial boon for Berkshire Hathaway.
It is important to note that before the passage of TARP, Buffett pretended like he was not interested in the debate surrounding the TARP bill. He committed to maintaining his public persona as a grandfatherly figure void of political influence and above crony capitalism. On September 24, 2008, Buffett told The New York Times, “I’m not brave enough to influence Congress.” I guess between September 24th and October 8th Buffett was able to muster up enough courage to hold a conference call with the Speaker of the House and the most influential House Democrats.
Companies that Berkshire Hathaway owned a stake in received $95 billion in TARP money and $130 billion in FDIC backing for their debt. Buffett lobbied for and received a bailout from taxpayers that saved 30 percent of Berkshire Hathaway’s entire stock portfolio. The bailout was not necessary to prevent the collapse of America’s financial system, but it was necessary to save billionaires such as Buffett. Mission accomplished.
Did Buffett’s political machinations pay off for Berkshire Hathaway? Obviously, the TARP money bailed out Buffet’s investments, but not only did he bail out his investments, he also used his influence and connections in D.C. to profit quite handsomely. Buffett’s Goldman bet alone yielded a $3.7 billion windfall.
Buffett was not content with his taxpayer bailout from TARP, he was just getting started. According to Schweizer, after the TARP bill passed, Buffett wrote a letter to Treasury Secretary Henry Paulson outlining a plan to clean up the toxic assets plaguing numerous financial institutions. Buffett proposed what he referred to as a “public-private partnership fund.” For every $10 billion the private sector invested, Buffett said the government should put up $40 billion. Buffett’s plan was eventually rolled out by incoming Treasury Secretary, Tim Geithner, in March 2009. According to quarterly reports from Buffett’s Berkshire Hathaway, between the time he developed his plan, and Geithner adopted it, Buffett quietly purchased another 12.4 million shares of Wells Fargo stock and 1.5 million shares of U.S. Bancorp. Once the federal government unveiled Buffett’s “Public-Private Investment Program,” bank stocks had soared, resulting in huge profits for Buffett.
Buffett is not some wise, grandfatherly figure. He is not a financial genius. However, he is quite adept at using his connections in D.C. to exact huge profits by riding on the backs of the American taxpayer to the tune of tens of billions of dollars. He is not some simple, country boy spinning tales of wisdom; he is a scoundrel with political connections he uses for interests. Buffett is a shrewd operator who is well-versed in crony capitalism and has managed to fool the greater majority of the American people by crafting a public persona that is truly Machiavellian.
Links on this site may be affiliate links. This site participates in the Amazon Services LLC Associates Program, which is an affiliate advertising program that helps this site earn advertising fees by linking to Amazon.com.