The provision that would have exempted Berkshire Hathaway's already existing derivatives contracts from new legislation imposing rules on collateral has been stripped from the Senate financial overhaul, the Omaha World-Herald is reporting.
On the substance, Berkshire's ceo Warren Buffett actually has a decent case against the law. Why should the government interfere with the right of two parties to contract as they wish?
On the politics, this is a good example of the hazards of crony capitalism, even for those, such as Mr. Buffett, who are master practitioners. Those in power can get uncomfortable with being perceived as always favoring certain individuals and companies, whether it is Mr. Buffett or Goldman Sachs. At that point, the politicians or regulators may strike back. Without a rule of law, those who were favored previously can face the same unfairness and arbitrariness that they sought to impose on others or supported imposing on others, either explicitly or tacitly.
Those who believe in free markets and in the rule of law would not favor retroactive interference with contracts. If such an action has an upside it is that those who are now getting hurt by the philosophy that the government and regulators can do whatever they want may be more inclined to join future efforts to reduce and eliminate the broad interference with the private economy and the rule of law.
