Mr. Buffett’s Pregnant Silence (or How the Executive Branch is Helping Him Steal Fannie Mae from Retail Investors who Can’t Fight Back)
- First, to set the stage, a story from Mr. Buffett’s official biographer, Alice Schroeder, about how Mr. Buffett has a glorious history of screwing the retail investor (I assume the story was included in Snowball to illustrate Mr. Buffett’s keen ability to identify and capture value…I think it emphasizes something else entirely)
“By then, Dan Monen, his lawyer, had joined Warren on a personal side project that he had been pursuing for some time: buying the stock of an Omaha-based insurer, National American Fire Insurance. This company’s worthless stock had been sold to farmers all over Nebraska by unscrupulous promotors in exchange for Liberty Bonds issued during World War I.
The defrauded farmers had no idea that their moldering paper was now worth something. National American was (now) earning $29 per share. National American was one of the cheapest stocks Warren had ever seen.
So Dan Monen, Warren’s partner and proxy, went off to the countryside carrying wads of Warren’s money…He sat on front porches, drinking iced tea, eating pie with farmers and their wives, and offering cash for their stock certificates….Warren kept it in the original shareholders’ names, with a power of attorney attached that gave him control, rather than transferring it into his name.
The brainstorm behind Warren’s National American coup had been more than just price. He had learned the value of gathering as much as possible of something scarce.”
…or he had learned the value of forcefully punching defrauded farmers in the groin.
2. In his 1991 letter to shareholders, Mr. Buffett confessed that NOT accumulating as many Fannie Mae shares as he could was a major blunder.
In early 1988, we decided to buy 30 million shares (adjusted for a subsequent split) of Federal National Mortgage Association (Fannie Mae), which would have been a $350-$400 million investment. We had owned the stock some years earlier and understood the company’s business. Furthermore, it was clear to us that David Maxwell, Fannie Mae’s CEO, had dealt superbly with some problems that he had inherited and had established the company as a financial powerhouse — with the best yet to come.
I visited David in Washington and confirmed that he would not be uncomfortable if we were to take a large position. After we bought about 7 million shares, the price began to climb. In frustration, I stopped buying (a mistake that,thankfully,I did not repeat when Coca-Cola stock rose similarly during our purchase program).
In an even sillier move, I surrendered to my distaste for holding small positions and sold the 7 million shares we owned. I wish I could give you a halfway rational explanation for my amateurish behavior vis-a-vis Fannie Mae.
3. Mr. Buffett’s silence regarding Fannie Mae’s conservatorship and the 3rd Amendment sweep is deafening…for a very good reason (or billions and billions and billions of them).
4. Mr. Buffett is very close with Hank Paulson (his banker at GS for many years) and didn’t utter a peep when Fannie & Freddie were put into conservatorship, stuffed like a turkey with $40 Billion of TBTF toxic mortgages (the only balance sheets in town that could absorb them), and saddled with intentionally punitive terms. (Note: the government’s force-feading Fannie and Freddie TBTF mortgage garbage may have helped some of Mr. Buffett’s rather large TBTF investments, no? Pass me my 6th cherry coke!)
FEDERAL ACCOUNTING STANDARDS ADVISORY BOARD December 17–18, 2008 “Mr. Reid (note: deputy assistant treas sec) reminded the Board that the government owning the preferred stock with punitive dividend terms provides incentive for the GSE’s to work its issues out as expeditiously as possible. Furthermore, by design, the warrants were issued not to take ownership but rather to devalue the common stock.”
Note: the TBTF banks were charged 2.5% interest and were not required to turn over any equity unlike AIG, FNMA, FMCC (otherwise known as the “Crisis Patsies”). Just a reminder that Morgan Stanley had already borrowed over $100 Billion by Sept ‘08.
5. Mr. Buffett is very close with President Obama and didn’t utter a peep when the admin/treasury starting taking all of Fannie & Freddie’s profits in 2012 (the gov claims they were in a “death spiral” but knew they were about to return to soaring profitability…come on people). Fannie and Freddie have poured over $260B into the treasury’s coffers since the sweep (really impeccable timing on that sweep admin/treas!)…to be used however the administration sees fit (really makes those deficit reduction numbers look awesome!).
6. Oh, and then there’s this…Berkshire Hathaway’s largest publicly traded holding is Wells Fargo.
7. And Wells Fargo wants Fannie and Freddie dead. “No joke, I once heard a Wells lobbyist say ‘we are going to kill Fannie and Freddie and take over their business.’” — unnamed source, you decide if he/she’s lying
8. Louise R, a retired nurse who resides in California, owns 36,000 shares of Fannie Mae common stock, some of which she and her late husband purchased over 25 years ago.
9. Josephine R. is a retired psychiatric social worker and inner-city school counselor who owns 1,000 shares of Fannie Mae purchased 15 years ago.
Note: (Louise and Josephine acquired their shares way before Bill Ackman or Bruce Berkowitz did…to all of the folks peddling the cheap, lazy narrative that this is about greedy hedge funds and not vulnerable retail investors and staggeringly important constitutional issues, shame)
10. Even if it flies in the face of all that we (and especially he) should hold dear regarding the rule of law in our capital markets and country, Mr. Buffett is more than happy to let admin/treas attempt to kill fannie/freddie and screw the retail investors who have owned shares for decades (retail investors can’t afford to fight the gov…you may hate the GSEs, but you should be able to erase the names of the plaintiffs and decide what the subject government actions mean in terms of fundamental shareholder rights and broad, critical constitutional issues)
11. Mr. Buffett’s hoping he finally has a chance to get his hands on Fannie Mae (through his massive holding in Wells Fargo), the missed opportunity he lamented in his 1991 shareholder letter. You know the financial powerhouse (his words) that got away. (Alternatively, there’s always that massive Berkshire cash hoard waiting for elephants to kill…and Fannie Mae’s a nice looking elephant). I wonder how many times he’s spoken with the President about it?
12. So Dan Monen, Warren’s partner and proxy, went off to the countryside carrying wads of Warren’s money…He sat on front porches, drinking iced tea, eating pie with farmers and their wives, and offering cash for their stock certificates…
References: The Snowball: Warren Buffett and the Business of Life (Or How My Colon Looks after 80 Yrs of Cheeseburgers), Berkshire Hathaway Chairman’s Letter 1991 (So So Folksy), FASAB Minutes 12/17 2008 (Oh Sh%$ There’s a Transcript of this?)