The Ultimate Crony Capitalist

http://www.futureofcapitalism.com/2009/11/the-ultimate-crony-capitalist

The announcement (pdf) this morning that Warren Buffett's Berkshire Hathaway is acquiring Burlington Northern railway raises some interesting questions. To begin with, if Mr. Buffett had $44 billion sitting around to spend, why did the taxpayers have to put $25 billion into Wells Fargo, $6.6 billion into U.S. Bancorp, and $3.38 billion into American Express through the Troubled Asset Relief Program? Berkshire Hathaway, as of its last annual shareholder letter (pdf), owned 13.1% of American Express, 7.2% of Wells Fargo, and 4.3% of U.S. Bancorp. These are significant positions, worth a lot more than the Buffett stakes in See's Candies or the Washington Post Company that you read more about in the newspapers because they fit with the folksy, straight-shooting image Mr. Buffett likes to project. If Mr. Buffett had all that capital to spare, why didn't he use it on propping up his own positions himself rather than accepting a government handout for which he later hailed Henry Paulson and Timothy Geithner as "heroes"? And that doesn't even touch the matter of Berkshire Hathaway's investment in government-backed Goldman Sachs, on better terms than the taxpayers received for their Goldman aid.

The first quote in the announcement of the acquisition is from Mr. Buffett making, in essence, a public policy argument. "Our country's future prosperity depends on its having an efficient and well-maintained rail system," Mr. Buffett says in the press release. He expanded on this argument in an interview with CNBC, in which Mr. Buffett made the case that rail moves freight in an "extraordinarily environmentally friendly way" that "releases far fewer pollutants into the atmosphere. It saves enormously on energy consumption and, you know, it diminishes highway congestion." You don't have to be a transportation genius to see where this is headed. In fact, the Heritage Foundation's Ronald Utt saw it coming in a prescient paper issued before the Berkshire-Burlington Northern deal was even announced. The headline was "Will Obama's High Speed Rail Plan Become a Subsidy for Freight Railroads?" You can guess the answer.

The money at stake here isn't as much as TARP, but then again, it doesn't have to be paid back -- $8 billion for high speed rail in the stimulus package, plus another $1 billion a year in Obama's budget, which Congress is trying to increase even more. There are already $35 billion in federal loans and loan guarantees available to finance development of railroad infrastructure, and the Transportation Department's web page on Freight Financial Assistance helpfully advises, "A number of loan programs provide financial assistance for freight rail." Mr. Buffett has plenty of experience in highly regulated industries, from insurance to utilities, and he has good ties to President Obama and his administration. Mr. Buffett is a smart investor, and he is portraying this deal not only as environmentally friendly but as a bet on America, an "all-in wager on the economic future of the United States." It all sounds green and red white and blue, but if it were happening in Russia instead of America, the sight of a single influential billionaire with close ties to the government getting so much government aid and positioning himself for more, while publicly praising the economic outlook following some economic policies that many people worry are misguided, a lot of Americans would see it as oligarchy. Mr. Buffett, munching his See's candies and sipping his Coca-Cola, appears less threatening, but don't be fooled by the appearances. Mr. Buffett is pretty smart at enriching himself and his shareholders, and he doesn't appear to have many qualms about doing it at the expense of the rest of the taxpayers.

by Editor  |  Nov 3, 2009 at 11:57 am Related Topics:  Banking, Capital Markets Regulation, Goldman Sachs, Press, Reverse Robin-Hood, Stimulus, Timothy Geithner, Warren Buffett receive the latest by email: subscribe to the free futureofcapitalism.com mailing list