OMAHA, Neb. — Warren Buffett and Charlie Munger again defended Goldman Sachs Group Inc. on Sunday, saying faulty government regulations are to blame for most of the economic turmoil of the past few years, not investment banks.
Berkshire Hathaway’s top two executives met with reporters to go over some of the topics the billionaires had discussed before about 37,000 shareholders at the Omaha company’s annual meeting.
Buffett has been one of Goldman’s biggest supporters before and since the Securities and Exchange Commission filed its civil lawsuit against the bank last month. Berkshire holds $5 billion in preferred shares of Goldman. Buffett said he has no plans to sell those shares because they remain a very good investment and are paying 10 per cent interest a year.
Goldman shares have fallen 22 per cent since the SEC filed its suit on April 16, closing Friday at $145.20. Buffett noted that Berkshire holds warrants that would let it buy the stock at a discount price of $115 per share.
The government has charged that Goldman misled investors about a deal, called Abacus, involving complex mortgage-related investments that later plunged in value. Buffett said he’s studied the charges against the investment bank and has “no problem with that Abacus transaction.”
The SEC claims Goldman misled investors by failing to disclose important information about the Abacus deal. Goldman allegedly didn’t tell investors that one of its clients, hedge fund Paulson & Co., was betting against the securities.
Buffett said ACA, the bond insurer involved in the Abacus deal with Goldman, was responsible for assessing the transaction’s risks, and that it shouldn’t have mattered that Paulson was betting against ACA’s interests.
Berkshire Vice Chairman Charlie Munger said he believes Goldman is the nation’s best investment bank in terms of morality and competency. He said vilifying Goldman won’t solve the problems created by what he called faulty government regulation of the financial industry.
“Our problem is that our commercial banks and our investment banks have been regulated with a combination of permissiveness and stupidity,” Munger said.
Munger compared the bankers that have caused problems to tigers that escaped from the circus and ran amok.
“It’s that idiot tiger keeper that didn’t do his job,” Munger said. “The government regulatory system has utterly failed us.”
Buffett said the economy is improving with manufacturing businesses showing the biggest gains. Buffett said sales have picked up at Berkshire subsidiaries such as its Marmon manufacturing conglomerate and Iscar toolmaking company. He also said sales are recovering at Berkshire’s Borsheims and Helzberg jewelry retailers.
But he said housing has yet to improve significantly because of the number of unsold homes lingering on the market. That continues to affect Berkshire subsidiaries such as Shaw Carpet and Acme Brick.
Buffett said several of Berkshire’s roughly 80 companies have started hiring workers, so he’s confident the unemployment rate, now at 9.7 per cent, will improve. But he said the hiring is slow so far.
Berkshire owns clothing, insurance, furniture, utility, jewelry and corporate jet companies, which give Buffett insight into the health of the overall economy. Berkshire also has big investments in companies including Coca-Cola Co. and Wells Fargo & Co.
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