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Let’s Hold Benedict Arnold Billionaire Warren Buffett Accountable

Buffett has taken to arguing that his own questionable derivatives should be shielded from government regulators.

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Fortunately for Goldman, their old colleagues who were now in control of the government purse strings decided that AIG was way too big to fail. So we bailed them out to the tune of about $180 billion. But the Goldman Sachs alumni went one step further. They allowed AIG to pay off its debts in full to Goldman Sachs: $12.9 billion went straight to the company's bottom line and bonus pool. And pass those interest payments over to Mr. Buffett! If the journalists around Buffett weren't so awestruck by his wealth and rock star status they might've asked him: Is this capitalism too?

So here's Mr. Buffett holding a big fat slice of Goldman Sachs, and now the SEC comes busting in, accusing the bank of fraud. Goldman Sachs is charged with loading up investors with a package of financial transactions called Abacus that it knew amounted to toxic junk--thus enabling a hedge fund friend, John Paulson (no relation to Henry), to make a billion by betting against the Abacus deal. What kind of toxic junk are we talking about? The very same synthetic collateralized debt obligations that Buffett once called "financial weapons of mass destruction." Mr. Buffett, Berkshire Hathaway and its delirious stockholders are now the proud owners of said weapons.

So what does Mr. Buffett do? The plain speaking dude from the Great Plains takes a stand--in defense of Goldman Sachs and its CEO Lloyd Blankfein. Then he steps smack into the financial cow pie by endorsing the Abacus financial weapons of mass destruction.

"I don't have a problem with the Abacus transaction at all, and I think I understand it better than most."

You betcha. Those darn critters are really kind of cute--when they're paying off big time for Berkshire Hathaway.

 

Buffett didn't stop there. He's lobbying hard on Capitol Hill to protect his own special derivatives, which he developed just before the crash. The financial reform Congress is considering would require companies like Berkshire to set aside large sums to cover potential losses on their risky investments. But if Buffett gets his way, the legislation will include a provision to "largely exempt existing derivatives contracts from the proposed rules," reports the Wall Street Journal. "The change thus would aid Berkshire, which has a $63 billion derivatives portfolio, according to Barclays Capital."

In other words, Mr. Buffett is following in the footsteps of AIG, which made hundreds of billions of bets without posting collateral. But what the heck, Warren is as good as gold, isn't he?

Since Buffett says he understands these shady financial products "better than most," maybe he can explain to us what economic value his special derivatives added to our economy. I can hear echoes of Claude Raines in Casablanca: "I'm shocked, shocked to find that gambling is going on in here!" It sure is and Mr. Buffett is now making himself quite at home at the poker tables. It seems casino capitalism is fine with him after all, even if it's a criminal scam.

I hope Buffett's fans realize that their dividends and capital gains are partly derived from taxpayer bailouts and from those financial weapons of mass destruction Buffett used to denounce. You know, the ones that blew up the global economy and put tens of millions of Americans out of work?

Maybe it's time to hold our billionaires to account, even the nice ones.

Les Leopold is the executive director of the Labor Institute and Public Health Institute in New York, and author of The Looting of America: How Wall Street's Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity—and What We Can Do About It (Chelsea Green, 2009).

 
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