The chairman of Berkshire Hathaway (NYSE:BRK.A), Warren Buffett, has released his annual letter (pdf), and, as always, it makes for some interesting reading. Said Mr. Buffett: "We will never become dependent on the kindness of strangers. Too-big-to-fail is not a fallback position at Berkshire. Instead, we will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earnings from our many and diverse businesses. When the financial system went into cardiac arrest in September 2008, Berkshire was a supplier of liquidity and capital to the system, not a supplicant. At the very peak of the crisis, we poured $15.5 billion into a business world that could otherwise look only to the federal government for help."
Here are some of the stock holdings of Warren "Supplier not a supplicant" Buffett's Berkshire: Wells Fargo (NYSE:WFC) ($9 billion worth at end of 2009). U.S. Bancorp (NYSE:USB) ($1.7 billion worth at end of 2009). American Express (NYSE:AXP) ($6 billion worth at end of 2009). The taxpayer 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 invested $5 billion in Goldman Sachs (NYSE:GS) on September 24, 2008; on October 28, 2008, Goldman agreed to take $10 billion in TARP money. Berkshire invested $3 billion in General Electric (NYSE:GE) on October 1, 2008; on November 12, 2008, GE Capital announced it had received approval from the Federal Deposit Insurance Corporation's Temporary Liquidity Guaranty Program to issue up to $139 billion in debt backed by a government guaranty. Granted, Mr. Buffett claims Wells Fargo was forced to take the TARP money (a claim reinforced by other accounts) and that the TARP money hurt his interests by diluting him. Wells Fargo didn't manage to do what at least some other banks did, and refuse the money. But for Mr. Buffett to go around bragging that he was a supplier not a supplicant, given all these facts, when elsewhere he's described himself as a net beneficiary of the government's actions during the financial crisis, is too much.
So is Mr. Buffett's claim: "We make no attempt to woo Wall Street. Investors who buy and sell based upon media or analyst commentary are not for us." If Mr. Buffett isn't attempting to woo Wall Street, what is he doing on CNBC what seems like every five minutes? Who does he think watches CNBC? And at whom is Mr. Buffett's comment aimed, in his letter, that book value "understates" the intrinsic value of Berkshire shares?
Particularly interesting was Mr. Buffett's statement that, for reporting purposes, he would group Burlington Northern (BNI), and Sante Fe Railroad with the electric utilities he owns. "Both require wise regulators who will provide certainty about allowable returns so that we can confidently make the huge investments required to maintain, replace and expand the plant. We see a 'social compact' existing between the public and our railroad business, just as is the case with our utilities. If either side shirks its obligations, both sides will inevitably suffer. Therefore, both parties to the compact should – and we believe will – understand the benefit of behaving in a way that encourages good behavior by the other. It is inconceivable that our country will realize anything close to its full economic potential without its possessing first-class electricity and railroad systems. We will do our part to see that they exist."
We wish Mr. Buffett and his shareholders good luck in finding "wise" regulators. In the meantime, a few questions that the New York Times, CNBC, and Fortune magazine journalists who will be screening shareholder questions for the Berkshire Hathaway annual meeting may want to consider:
1. If Wells Fargo didn't need the TARP money, why didn't the bank turn the money down? If Wells Fargo was threatened or bullied, how does that reflect upon your description of Timothy Geithner, Henry Paulson, and Ben Bernanke as "heroes"? And if Berkshire was a "supplier" and not a "supplicant," why didn't GE, Goldman Sachs, American Express, and U.S. Bancorp all turn down the billions of dollars of help they got from the government, too? Why should American taxpayers who work at companies that didn't get bailed out be taxed to support the companies that you invest in? Almost every single one of those taxpayers, after all, is less rich than you are.
2. At year-end 2007 Berkshire's balance sheet listed about $44 billion in cash and "cash equivalents." In mid-summer 2008, how much of that money was in Treasury Bills and how much was in other things? If there was a substantial amount in other things, what were those other things, and what would have been the risk to the other things and the loss of value had Mr. Paulson and Mr. Bernanke not taken the steps that they did?