Thanks a Billion!

On the day it was announced he is to be awarded the Medal of Freedom, Warren Buffett wrote, in the New York Times, a “thank-you letter” to “Uncle Sam” for giving Wall Street billions of dollars and making sure that institutions like Goldman Sachs and AIG did not perish from the earth.

Though peppered with Buffett’s long-cultivated hokiness, the letter is equivalent to a man sending his prostitute a Christmas card.

Well, Uncle Sam, you delivered.

Buffett certainly took a hit in 2008, though I seriously doubt Berkshire Hathaway would have gone under, as he implies. No matter, Buffett benefited mightily from the bailout era. And “Uncle Sam”’s backstopping of price declines and flooding of the banks with capital was only the beginning. Buffett bought some 5 billion in preferred stock in Goldman Sachs at the height of the crisis in late September 2008, confident that “Uncle Sam” would do whatever it took not just to keep the “Bigs” from failing but make them wildly profitable again.

Only one counterforce was available, and that was you, Uncle Sam. Yes, you are often clumsy, even inept. But when businesses and people worldwide race to get liquid, you are the only party with the resources to take the other side of the transaction. And when our citizens are losing trust by the hour in institutions they once revered, only you can restore calm.

“Uncle Sam” was the only one willing to “take the other side of the transaction” because the assets “he” was buying were worthless.  The “price discovery” that Bernanke referred to in 2008 amounted to letting Wall Street price garbage and sell it to their caring “Uncle.”

And Buffett’s thank-you note is representative of something larger as well. As “Credit Bubble Stocks” writes,

Buffett is an excellent (though overrated) investor, but behind the aw-shucks Omaha façade is a much more "complex" character. He has a lot to answer for.

He is also in the complacent, "rah-rah America" class of investors who think that because the baby boomers lived such pampered lives, misfortune has been permanently banished from history.

I, too, respect Buffett’s “value investing” philosophy and methods. Who wouldn’t? But he is also an example of an entire class of American Baby Boomers (and those who just preceded them) who lived through the greatest credit bubble—and debt-financed consumption binge—in world history and think that they did something special. And the moment this 25-year cycle came to its inevitable end, and their portfolios of mutual funds and real-estate were put in jeopardy, they pleaded to the government to save them. Preserving their current nominal net-worth was so important that they had little compunction impoverishing their grandchildren and enshrining financiers as government-sponsored Masters of the Universe.

Thanks a lot.