Warren Buffet and The Finanacial "Pearl Harbor"

As many readers may have noticed, I am not a big fan of capitalism as it is currently constituted. Nevertheless, I am a big fan of one of capitalism's leading lights, Warren Buffet. The genial Mr. Buffet is, perhaps, the most successful investor Wall Street has ever known. The irony is that he never gets anywhere near Wall Street; he lives in the Omaha home he bought in 1958 for $31,000. Granted, he also has a summer home in Laguna Beach, worth some $4 million, but these are modest accommodations for a man who may be the richest in the world.

Buffet's company, Berkshire Hathaway, is likely the most successful firm in the world, judged by the return to investors. The book value of the firm, from its founding in 1965 to last year, grew by an annual compounded rate of 21%/year, which is 10.8% above the S&P 500. The total increase in value over that period is in excess of 400,000%. Not bad for a country boy.

But aside from avoiding Wall Street and living a relatively modest lifestyle, Buffet is unusual in other ways. He believes that the rich pay far too little in taxes. He also believes capital gains should be taxed at the same rate that wages are. This is significant, since Mr. Buffet's salary for running B-H is only $100,000/year; no golden parachutes here! His fortune is entirely the result of his investment expertise. He decries the fact that, as the world's richest man, he pays a proportionately lower share of his income in taxes than does the lady who cleans the office. He also points out, to those who claim that the rich pay too much, that they are ignoring the effects of the Social Security taxes, which raise almost as much as the income taxes, but are only levied on the first $100k or so of income. This means that the less you make, the higher the proportion you pay in taxes.

Like the E. F. Hutton ad of years ago, When Warren Speaks, the Nation (ought) to listen. And Warren spoke with Charlie Rose last week for an hour. For those of you who didn't hear it, here it is:





Mr. Buffet believes that we are in the midst of a “financial Pearl Harbor.” The meltdown will last at least six months, but more likely several years. He supports the bailout, but he thinks the public should buy the toxic paper the banks are trying to foist off on us at their current market value. This is an important point (see “Market Mysticism”) since the banks want us to buy this stuff at its “mark-to-model” value, which means, in effect, any old price the banks put on it. If we buy this stuff at its market price, the public will get a good return on its investment.

As a matter of full disclosure, I am a stockholder in Berkshire Hathaway. But this old distributist will listen to the old capitalist. Pearl Harbor was a rather severe wake-up call. This melt-down is another. How will we respond? Trouble in life is inevitable; the real test, for a person or a nation, is how we deal with it.

6 comments:

Mary,  Wednesday, October 8, 2008 at 11:05:00 PM CDT  

Warren Buffet is also an old population controller in the Rockefeller mold who perhaps more than anyone is responsible for bringing RU-486 to market.
I can only believe that his desire for the rich to pay more taxes is so that the state would have more resources at its disposal to remake the human race.

fideidefensor Thursday, October 9, 2008 at 1:01:00 AM CDT  

Part I of the Paleo Radio interview is available on http://thepaleocrat.com as well as http://youtube.com/paleocrat.

I think the sound was acceptable. Not perfect, but better than nothing.

Mary,  Thursday, October 9, 2008 at 10:38:00 AM CDT  

Fantastic. I'll check it out.

John Médaille Thursday, October 9, 2008 at 12:08:00 PM CDT  

Mary, there are many disagreements I have with Mr. Buffet. He is a capitalist and I am a distributist. I am a Catholic and he is not. He has bought into all of the modernist myths, and I have bought into none of them.

Mostly, he has bought into the myth of overpopulation. Worse, he has given his money to Bill Gates, whom I consider to be the devil incarnate. Gates wants to do for Africa the same damage he has done to computers. Poor Africa. She always suffers from well-meaning white boys with more money than brains. If we would just leave them alone and give them a fair price for their produce, most of their problems would disappear; they need not "aid," but justice.

Buffet's position on this is odd, because he knows the importance of labor, and says in this interview that capital should not be tax-advantaged over labor. But he doesn't take the next step of saying that wealth is founded on labor, and the more labor (persons) the more the opportunities to create real wealth.

All that having been said, I don't think you can judge people by standards that are outside their experience. Buffet is doing the best he can with the education he has. And you have to meet people where they are, not where you would like them to be, and where they ought to be. You do have to acknowledge people for their genuine virtues, even if you point out their intellectual faults.

And Mr. Buffet does have genuine virtues, virtues worthy of praise and worthy of a hearing. "Hearing" does not imply agreement with everything he says, but it does demand acknowledging where the real virtue lies, and where the real vice begins.

Anonymous,  Thursday, October 9, 2008 at 4:30:00 PM CDT  

Who knows, Mr. Buffet may change is mind on such things if people really begin to suffer due to these events? I think a lot of those views were formed through the filter of our society's material prosperity. Maybe not, but in my past times I thought abortion was fine. I've since changed my views and come back to the Church. St. Paul, St. Augustine, etc. --enemies of God who then took that evil energy and put toward good. I agree with John except that when listening to someone you have to take into account their known views to keep guard against adopting something less than wholesome.

Mary,  Friday, October 10, 2008 at 11:53:00 PM CDT  

I've always wondered how much of a role his wife played in his support for abortion. I think the financing for the RU-486 development came thru a fund in her name.

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