Jamie

Warren Buffett wants to give Jamie Dimon a job:

On the Charlie Rose show [last month], Buffett was asked what kind of message it would send if President Obama picked Jamie Dimon or another Wall Street banker to succeed Timothy Geithner, who has expressed a desire to leave the post after Obama’s first term.

“I think he’d be terrific,” said Buffett, chairman of Berkshire Hathaway, about Dimon. “If we did run into problems in markets, I think he’d actually be the best person you could have in the job.”

Buffett added that Dimon would have the confidence of world leaders if he were appointed to the Treasury post.

Warren Buffett is one of America’s biggest bailout beneficiaries, having profited hugely from buying into firms whose assets were subsequently bailed out. Shortly after the crisis began in 2008, Warren Buffett loaned money to, and bought options from, Goldman Sachs, seemingly with the knowledge the bailout of AIG — a counterparty to which Goldman had massive, massive exposure — would take place.

Dimon as Treasury Secretary would intend more of the same. Dimon and Buffett and others like them believe in having their cake and eating it. They seem to believe that the U.S. taxpayer should provide a liquidity lifeline to their fragile and risky too-big-to-fail businesses, but without at the same time demanding any regulatory oversight to prevent too-big-to-fail banks from acting irresponsibly.

The Financial Times noted in 2011:

Jamie Dimon, chief executive of JPMorgan Chase, launched a broadside against financial regulation on Wednesday, warning that new capital rules could be “the nail in our coffin for big American banks”.

Regulators are negotiating international capital standards for the biggest banks but Mr Dimon said setting the new requirements too high, or allowing overseas banks to calculate their asset base differently, could disadvantage US banks and was already stifling economic growth.

If you want to set it so high that no big bank ever goes bankrupt … I think that would greatly diminish growth,” he told a US Chamber of Commerce conference. Too large a disparity in capital requirements between Europe and the US would mean “you’re pretty much putting the nail in our coffin for big American banks,” he said.

What this really amounts to is a lack of skin in the game. Big banks can gamble and speculate without remorse and without risk — if they win they keep the proceeds, and if they lose the taxpayer will pick up the pieces. This destroys the market mechanism, and any hope of self-regulation. Were lessons learned from 2008? If the antics of Corzine, Kweku Adoboli and the London Whale — just three big financial blowups in the last year — are any guide, big finance is acting just as irresponsibly and self-destructively as before the crisis.

Buffett and Dimon surely have in mind more cronyism, bailouts and free lunches, but the reality of the next four years and beyond may be very different indeed.

While it is impossible to predict exactly when the next crisis will emerge, the current slump in capital goods orders, the intractable debt overhangand the general trend of ditching the dollar as a reserve currency do not look good. As one of the architects (both practically and ideologically) of the current mess, Dimon as Treasury Secretary would at least get all the blowback and blame when the bubblecovery finally implodes into a currency or supply chain crisis that cannot be bailed out through liquidity injections.

JamieCoyote

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Warren Buffett & CreditAnstalt

Is Warren Buffett shooting himself in the head? There’s one issue (okay — a couple of issues) I have been silent on in the past few weeks. But on Bank of America, it’s time to break the silence — because the issue of bank failures and bailouts can have huge, violent ramifications. So let’s look at Bank of America’s credit default swap spreads:


The red dot is where we leaped to just before Warren Buffett — the so-called Oracle of Omaha —  piled $5 billion into less than 24 hours after an Archimedean bathtub epiphany. I hope he did his due diligence:

“The Investor acknowledges that it has had an opportunity to conduct such review and analysis of the business, assets, condition, operations and prospects of the Company and its subsidiaries, including an opportunity to ask such questions of management (for which it has received such answers) and to review such information maintained by the Company, in each case as the Investor considers sufficient for the purpose of making the Purchase. The Investor further acknowledges that it has had such an opportunity to consult with its own counsel, financial and tax advisers and other professional advisers as it believes is sufficient for purposes of the Purchase. For purposes of this Agreement, the term “Transaction Documents” refers collectively to this Agreement, the Warrant and the Registration Rights Agreement, in each case, as amended, modified or supplemented from time to time in accordance with their respective terms.”

Of course, if Warren Buffet wants to throw billions of dollars at an institution which may or may not be sitting on a powder-keg of bad debt, then that is his prerogative. The problems begin when said Oracle’s new investments tank, are declared “too big to fail”, and are propped-up by the taxpayer. And it just so happens that there is an historical precedent for this. From Seeking Alpha:

As a former NLO dividend watchlist stock, Bank of America (BAC) has fallen on hard times that in many respects were predestined. In a posting titled Financial Panic Chronicles dated May 9, 2009, we pointed out the similarities of the October 1929 forced merger between Austria’s number-two bank BodenKreditAnstalt with number-one ranked CreditAnastalt, and the forced mergers between Bank of America/Merrill Lynch, Wells Fargo/Wachovia, and J.P. Morgan/Bear Stearns in 2008.

Our point of making the comparison between distinctly different institutions in different eras was to show what the hazards might be when an ailing bank isn’t allowed to fail. It was only two years after the merger of BodenKreditAnstalt with CreditAnstalt that the remaining “super bank”, CreditAnstalt, collapsed which resulted in the worldwide banking crisis.

The failure of CreditAnstalt in 1931 did not arrive without a fight. F.M. Rothschild committed enormous amounts of money from 1930 to 1931 in an effort to use his name and financial largess to sway public opinion of the health of CreditAnstalt, not unlike Warren Buffett’s most recent investment in Bank of America. Buffett’s announcement that he’ll invest up to $5 billion may be a significant win for the Oracle of Omaha, and has temporarily boosted the share price of Bank of America by nearly 13%. However, even the biggest money interests cannot forestall the inevitable consequence of forced mergers if hobbled banking institutions.

The culmination for CreditAnstalt was nationalisation. Will it be the same for Bank of America?

Why Warren Buffett Is Wrong

From the Telegraph:

“Gold really doesn’t have utility, the 80-year old told shareholders at Berkshire Hathaway’s annual general meeting. “I’d bet on a good producing business to outperform something that doesn’t do anything.”

And so would I. My entire economic position is founded on the idea that productivity is better than non-productivity. So why am I so bullish on gold? And why am I so convinced that Warren Buffett — a man who has had such a successful investment career — is so out of step with reality?

The answer is really very simple — Warren Buffett’s investment career, starting seriously in 1947, has existed in the shadow of the greatest sustained gains in stocks & GDP in the history of the world. Let’s look at the S&P500, mapped against GDP from 1950 to 2010:

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