Warren Buffett was always more of a myth than anything else.  Before recently at least, he seemed to have a stature that transcended his extraordinary wealth.  He seemed to be the voice of reason in the markets – the person who wanted to make money in the right way.  Somehow in the last month, however, Buffett has gone from being the authority on value to defending some of the most dysfunctional and socially worthless elements of the global financial system.  It’s funny how heroes end up cutting themselves down to size even when no one else can.

Bond Girl, by “value,” we mean market value, not family values.  You’re getting these confused here.  Buffett did not create the markets; he only invests in them, like everyone else.  Once you put your money in something then yes, you must defend it, because you have a duty to your shareholders to defend your decision to invest in said something.  You might not like how things work in the markets, but your personal feelings about the markets should not affect your duty to your shareholders — ever.  Buffett did the right thing at the time in respect to the data available to him.  That’s just good leadership.

Buffett received a lot of press in early May for defending Goldman Sachs at Berkshire Hathaway’s annual meeting, directly after the SEC sued the bank for securities fraud.  I found his enthusiastic and unqualified support for the firm somewhat jarring because I had not met anyone else willing to offer the same.  Most of the people in finance that I know at least lamented the fact that such deals were becoming synonymous with the finance industry as a whole and that they were perceived as guilty by association in the popular consciousness.  Most people seemed to acknowledge that even if Goldman’s behavior was legal, it was not particularly ethical and not the way one would want to run a business.  But there was Buffett, saying that if he has to pick a successor for Blankfein, he’d want Blankfein’s twin brother.

Most people?  Have you ever run a business?  Running a business is about making tough choices.  And sometimes, you get a break, you see an angle.  When you do, you take it.  Now I’m not talking about stealing, but if Zappos, for instance, decided to price all their shoes below wholesale for one day, and you knew about it, you should take advantage of their mistake — THAT’s BUSINESS.  Period.  Not good business, not bad business, but business itself.

And it’s not like Buffett stopped there.  Buffett not only defended Goldman but the Abacus transaction itself, which offered no value in the markets generally and was indistinguishable from gambling.  The WSJ quoted Buffett as saying “it’s a little hard for me to get terribly sympathetic for a bank that made a bad credit deal.”

Exactly.  If a bank, or any business for that matter, makes bad deals, they should not be in business.  It is not for you to pass judgment.

Today, Buffett decided to defend Moody’s Investors Service.  Curiously, Buffett did not make the same argument with respect to Moody’s as he did with the banks – that is, that they should have recognized a bad credit deal when they saw it – because…  Well, I’m not sure…  What function are rating agencies supposed to serve again?

Instead:

“I’m much more inclined to come down hard on CEOs of institutions” that needed to be bailed out by taxpayers, Buffett said today at a hearing of the Financial Crisis Inquiry Commission in New York.  [Wait, you mean like the ones whose credit derivatives were backstopped by taxpayers at par?  I thought we wanted to hire them or their twin brother.]  Managers at Moody’s “made a mistake that 300 million other Americans made,” he said.

I’m not going to say that ratings analysts represent the sharpest minds in finance, and I’ve said in the past that credit analysis can be very subjective, but the rating agencies’ decision to stamp pretty much anything with an AAA rating was hardly just an intellectual accident and, more importantly, this behavior did not end with the financial crisis.

Buffett makes sense here.  If your business is to gauge creditworthiness, and you fail to do that job well (despite having tools in place to do so), it’s a problem with management and you need to fix that problem (and that DOES NOT always mean you fire the person responsible).  This is a very basic rule of business.  Service at the local diner shitty?  It’s a management problem, not a waitstaff problem or a line cook problem.  This is very clearly the opinion of someone who doesn’t know what it’s like to run a company.

Nevertheless, your logic sounds good to me, Mr. Buffett.  My next-door neighbor’s opinion about the relative creditworthiness of a security is not used as a standard in financial regulations.  Moody’s opinions shouldn’t have that status either.

I agree with you here, Bond Girl.  The problem, however, is that industry standards prevail on Wall Street.  You have a problem with that?  If you do, then it’s regulation you seek, not finger-pointing at people who don’t really deserve it.

FELIX SALMON

Buffett is that rarest of institutional shareholders: someone who actually owns and runs lots of large companies of his own. As such, he can and should act much more like an owner than most shareholders. But he doesn’t, and he has no visible desire to fix the problems at Moody’s or at the ratings agencies more generally. He just says he wishes he’d sold his Moody’s stock earlier, passing on those losses to some other sucker. I don’t think he’s ever going to be able to live this one down.

Mssr. Salmon, do you know what it’s like to own a company?  If you do, you’d also understand the importance of installing a good management team and giving them room to do their thing.  That’s what Buffett does: he lets management manage.  In other words, he does not micromanage, as you are prescribing here.  Or, in other words still, Buffett is not an imbecile.

And why are you such an asshole?  Do you know how many people in the world would’ve liked to have sold their home at the peak of the market, “passing on their losses to some other sucker”?  He got caught in the mess, like so many of us.  Should we all be judged by you?

Internet!  The stupidity must end now.