The Sainthood of Warren Buffett - Part 3

In response to a defense of the Municipal Insurance bailout proposal by Warren Buffett on the grounds that he would be backstopping the bond insurance industry:

Continuing with the Buffett questions: today (February 13), he is being ridiculed by professionals in the financial industry (including Wilbur Ross this morning) for exactly the same point that I made yesterday morning. His very public supposed "bail out" of the bond insurers was very self serving (and yes, he does have a fiduciary obligation to his stockholders) and would not benefit the public or the insurers in any way. In fact, if they did for some reason agree to the extorted terms (paying a premium to Buffett for bonds with virtually no risk 1.5 or 2 times what they themselves received, which would cause even more negative cash flow for the insurers), the bond insurers would be terminally injured, their reserve capital further impaired by the negative cash flow and would thus crush the bond market, thereby extending the problems of working out the financial derivative issues here and around the world.

So, Buffett, who at one time bought out-of-favor businesses with bright long term prospects, good cash flow and very good managers, is now in the business of being a vulture of the worst kind who will make deals that enrich him at the rest of the world's (literally) expense?! It is pathetic. Almost Mafia-like and beneath what I thought was his dignity and esteem. I really have lost respect for him and want nothing to do with him or BRK.

If Buffett was willing to stand behind the CDO and RMBS liabilities in return for the nice, risk-free muni bond insurance, that would be a reasonable and semi-noble position (no one expects Buffett to take a hit for the industry or the economy). But that is not what he proposed. He proposed to relieve the muni insurers (so called monoline, but not really so since they are now in multiple lines of business) of their good merchandise and leave them with the crap. The fact that vulture Wilbur Ross is looking to be a saint compared to Buffett is the whole point. Buffett has plummeted to new lows.

His supposed rescue would not restore confidence in the market in the insurers and would not elevate them back to AAA on their CDOs, etc, it would devestate their credit rating by removing the good assets on their books which at least provide relative risk free cash flow/capital, to something in the junk range and permanently impair their ability to insure muni bonds (since all that would be left against the reserve capital requirement would be wobbly commercial and mortgage derivative paper; this, of course, is Buffett's objective. He wants to eliminate all competition in the muni bond business and have it to himself).

If the insurers go, all the liabilities they insure would go back on the originators, the banks (including the big non-USA banks like UBS, Deutsche and HSBC). This hit to the banks would probably push them over the edge and cause them to default on their capital reserve requirements, putting them in technical bankruptcy. This would affect almost all the global money center banks, and potentially precipitate a global financial meltdown and depression. It probably would not go that far because the government would run to the rescue by reducing reserve requirements and possibly buying the impaired assets onto the government's accounts, or some other means; but that means the burden would be transferred to the tax payer one way or the other, all to benefit Buffett. And he talks about the need to raise taxes! That will surely be the case if he is successful, which he won't be.