To all of my friends out there who believe Warren Buffett is a knight in shining armor for advocating higher taxes for super rich, please consider the following thoughts on Buffet triggered by the story I just read (copied below) about Warren buffet buying $5 bn in preferred BoA shares.
Buffet supports big government and he expects reciprocity. Buffet’s act – if viewed in the proper context -- is far from a selfless or “socially responsible.”
If we look through (what I consider) the proper lens, Buffets support of higher taxes on the super rich can be seen as driven by base greed.
Big government and big finance/big biz/big labor all go together like peas in a pod. You can’t create a big government solution for social problems without at the same time creating special interests who hijack the public policy for their own selfish purposes.
This is exactly what we see with Warren Buffet.
The timing of Buffet’s purchase of BoA shares and publication of his op/ed in WSJ is not coincidental. Adam Smith noted over 200 years ago that big business is NOT an advocate of “free markets.” Big business loves government regulations and interventions because big business has relatively large resources which they can deploy to hijack the regs for their own selfish interest via money politics. The government aims to help the little guy, but the big guy always wins.
The way I see it, Buffett wrote his op/ed as a way to solidify his pact with Big Government before investing $5 bn of his hard earned dollars into a “private” bank. Buffets message: You scratch my back, and I’ll scratch yours.
I am sorry if this upsets people who want government to intervene into the economy and society in order to “level the playing field” or to fix market failures. Unfortunately, (according to Nobel Prize winner James Buchanan and his Public Choice theory) any time the government injects its solutions into the market, there are special interests that hijack these interventions for their own purposes; thus, the government inevitably becomes hostage to special money (big biz) interests and cannot fix the market even under the best circumstances and with the best of intentions.
Campaign finance reform aims to fix merely one terrible SYMPTOM of the big government disease (ie, money politics), and thus campaign finance can’t hope to provide a durable solution for this awful scourge on society. The only real and durable solution to money politics is to reduce the size and scope of government’s intervention in the economy: get government out of the business of picking winners and losers – and suddenly money politics won’t “pay.”
The little guy has a chance to compete in the free market, but in the one carefully circumscribed and regulated by government, the little guy is (paradoxically) screwed!!! Why did Obama pass a health care reform that gave huge concessions to big pharma and big insurance and big labor? It was the GOPs fault, right? No. The Dems had a super majority in Congress and yet Obamacare missed the opportunity to create a system that reduced costs. Special interests hijacked the reform process. This is predictable and inevitable because government created the Frankenstein monster that has become big insurance and big pharma through a combination of subsidies and massive regulation.
There are no free lunches. Life isn’t fair. and government can’t change these simple facts. This may seem hard hearted and counter intuitive to our knee jerk instincts of wanting to do the right thing … but I think we need to admit limits of government intervention lest we kill the market in the name of fixing it. We fail the market. the market doesn’t fail us. the market is inherently imperfect, but it is also (unfortunately) the best we can do. and by the way, the free market doesn’t mean might makes right and the big kill the small.
The free market means mutual respect for property rights and mutual restraint. It means cooperation between big and small. It means competing to provide the best product at the best price. When government tries to fix market imperfections (erroneously called market failures), it actually imposes a might makes right ethic into what was previously an ethic of mutual respect. When government provides enlightened services like “leveling the playing field” for example (by providing public education or cheap loans for housing), it must use force to accomplish its goals. Government intervention injects the immoral logic that the ends justify the means. In a market the ends don’t justify the means and might does NOT make right. In a market, there is mutual respect and mutual restrain based on the logic embedded in freedom and property rights.
try to turn an imperfect market into a perfect human design and you risk making market imperfections even worse to the point of risking the very viability of the system itself. that is the law of unintended consequences. That is the road to serfdom. That is why the middle way doesn’t work. the middle way sows government distortions that trigger unintended consequences that beg more government solutions and so on … paving the road to serfdom as we are seeing play out in the EZ and in the US which is following in footsteps of EZ.
Aug. 25, 2011, 10:26 a.m. EDT
Bank of America rallies on Buffett investment
Billionaire’s Berkshire Hathaway buys $5 billion in preferred stock
By Steve Gelsi, MarketWatch
NEW YORK (MarketWatch) — Warren Buffett on Thursday tossed a $5-billion lifeline to beleaguered Bank of America Corp. that sent the stock charging higher and, of course, padded his own wallet in the process.
Following the announcement, shares of Bank of America (NYSE:BAC) scored solid gains for their second straight day — a reversal following weeks of steep losses in the wake of the European sovereign debt crisis and rising jitters about a double-dip recession.
Shares of Bank of America rose 17.7% but are still down almost 40% since the beginning of the year. Investors have fled the stock amid concerns that the bank might need to raise capital as it works to heal itself from the bruising mortgage-loan debacle.
Buffett’s move, which is similar to the deal he pulled with Goldman Sachs Group Inc. (NYSE:GS) back in the financial crisis of 2008, should go a long way in easing those fears.
“Bank of America is a strong, well-led company, and I called [CEO Brian Moynihan] to tell him I wanted to invest in it,” said Buffett, chairman and CEO of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) in a statement. “I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them.
Reuters
Warren Buffett, CEO of Berkshire Hathaway.
“Bank of America is focused on their customers and on serving them well,” he added. “That’s what customers want, and that’s the company’s strategy.”
Terms call for Bank of America to sell 50,000 shares of cumulative perpetual preferred Stock with a liquidation value of $100,000 a share to Berkshire Hathaway in a private offering.
Berkshire’s the holding company controlled by Buffett that owns financial services, insurance, building products and consumer goods companies.
The preferred stock has a dividend of 6% percent per annum, payable in equal quarterly installments, and is redeemable by the company at any time at a 5% premium.
In conjunction with this agreement, Berkshire Hathaway will also receive warrants to purchase 700 million shares of Bank of America common stock at an exercise price of $7.14 a share.
The aggregate purchase price to be received by Bank of America for the preferred stock and warrants is $5 billion in cash.
“We are building the best franchise in financial services and we have laid out a clear plan to deliver long-term shareholder value,” said Moynihan. “I remain confident that we have the capital and liquidity we need to run our business. At the same time, I also recognize that a large investment by Warren Buffett is a strong endorsement in our vision and our strategy.”
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