buffett and poetic justice

Posted on February 7, 2008


Billionaire extraordinaire Warren Buffett has spoken, and this time, he directs his wrath against the banking system and its greed.

Buffett called the banking meltdown “poetic justice” for bankers, their chickens coming home to roost for designing complex investments which are now haunting them and their companies’ bottomlines.

“It’s sort of a little poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end,” he said in a corporate event in Toronto.

True, but Buffett has unfortunately overlooked two things – the evil bankers whom he derided would still have plenty of cash and get rescued despite their missteps, while ordinary folk who have done nothing wrong but save their earnings have been hard hit by the developments.

Witness the Federal Reserve’s bailout of the bad bets made precisely by the bankers vilified by Buffett. Interest rates have been cut aggressively by 1.25 percentage points in two successive steps last month, as the Federal Reserve got nervous at the extent of the damage to the housing market and the stock market. But these cuts are driven more by a panicky reaction to the falling markets than inflationary worries, a point that worries economists about the Fed’s handling of the economy.

And bankers don’t seem to lose the shirts off their backs when they develop sloppy investment instruments that falter badly, taking the economy down with them. These self-styled masters of the universe still get their hefty bonuses. And if they were fired, such as Merrill Lynch and Citigroup’s bosses, better yet – a cushy package ushers them out to continue playing their golf games. Or allows them to move on to start other dodgy hedge fund businesses. Or they might even be back at a different firm which would allow them to wreak more havoc in the very forgiving industry in which they operate.

Despite some spectacularly bad investments, banks still have many willing rescuers – witness eager sovereign funds like the Singapore government’s investment arm, Government of Singapore Investment Corporation, injecting $10 billion in funds into Swiss bank UBS, and Merrill Lynch given a second lease of life by selling $5 billion in new stock to another Singapore government investment arm, this time Temasek Holdings. The Abu Dhabi Investment Authority has also thrown $7.5 billion at Merrill, while the Chinese government’s investment company has bought a $5 billion stake in Morgan Stanley.

Meanwhile, ordinary folk are the ones left footing the bill – tougher credit, substantially lower interest rates, and the threat of a recession, which means possible job cuts.

So much as I think Buffett has often been a good Samaritan in the greed-fueled world of business and finance, giving away some 85 per cent of his Berkshire Hathaway stock worth over $40 billion to five foundations, his comments this time do not quite hit the mark.

But that is more that can be said of Google, whose ostensible motto is “don’t be evil”.

Google has been seeking to thwart the Microsoft-Yahoo tie-up after Microsoft’s unsolicited $44.7 billion bid for Yahoo.

Reasons it offers against the Microsoft-Yahoo merger include antitrust issues, this when Google already dominates the market overwhelmingly in internet search and online advertising.

Google had also placed calls to Yahoo to dissuade it from taking up Microsoft’s offer with offers of partnership between the two internet companies.

While all is fair in business, Google’s feelings of being threatened by the Microsoft-Yahoo merger has it acting disingenuously, going to the extent of it appealing to other companies like Time Warner to intervene with a counter offer to Yahoo and prevent a credible competition to it.

So while there isn’t much sympathy for Microsoft, Google’s actions does leave an unpleasant taste in the mouth and would only lose them credibility on being the team which is out to use technology to help others while differing from the bullying path that Microsoft has taken.