Warren Buffett missed a great legacy opportunity yesterday when he placed a five billion dollar bet on Goldman Sachs. Buffett said he was betting on brains. He said his move was conditioned on his confidence that the 700 billion dollar government bailout would occur. Buffett put more than money on Goldman Sach’s table. He left a cryptic message that Wall Street brains will get the better of the U.S. Congress and the American taxpayer. In less than code language he conveyed his intention to capitalize on any resultant surge in the valuation of investment banks. He also used his first mover status to galvanize a coalition of believers in the efficacy of rehabilitating key balance sheets on Wall Street.
The Buffett decision can be viewed as a tragic triple strike against the common good. First, massive money is provided to a corporation that games the financial system through proprietary trading systems. These systems often take inverse positions to the general public, siphoning off funds that would otherwise build the estates of American workers. Furthermore, Goldman Sachs services a universe of tax dodging hedge funds in places like the Cayman Islands. Intentionally or not, Buffett’s decision undercuts populist sentiment to hold Wall Street accountable for its excesses.
Secondly, the Buffett decision reinforces the strength of certain financial elites at the expense of the American working class. This move depreciates the principles of democratic republicanism upon which our nation was built. It flies in the face of Jeffersonian, Madisonian and Jacksonian theories about the implausibility of enduring prosperity for the masses when fractional banking power is inadequately checked. One would think that a modestly living Nebraskan might appreciate these sentiments.
Thirdly, and most significantly, Buffett’s decision reduces the prospect that he could become a 21st century Founding Father for a decentralized and morally robust banking system that could gradually replace the corrupted Wall Street system. Buffett’s billions could be seed money for the new system, and Buffett’s investment reputation the glue holding together the ideologically and geographically diverse coalition that would create the new world. Indeed, the next fifty years of investment banking could be bigger than the last fifty as the world converts from fossil fuel technology to sustainable technologies. This is why those with massively vested interests in Wall Street are so desperately leaning on the U.S. Congress to use taxpayer money to re-capitalize their franchise. Granted, many of these people have private accounts with great wealth, but they don’t want to draw on that money to rebuild the Street’s lending apparatuses.
A good number of Wall Street’s old-time elites have declared that the Street as an institution has breached nearly every ethical standard in the financial world (and any other world you can think of). This is the Wall Street that brings us to the brink of financial catastrophe – the very idea articulated by a former Goldman Sachs chief executive, now our Secretary of the Treasury. Wall Street’s experts are the ones who have long declared that credit derivatives would marginalize any prospects of systemic financial risk. Instead, the opposite has happened. What credibility do they have? Why would Buffett bolster their system? The only plausible answer is that Buffett fears the collapse of the quasi-Ponzi system in which his wealth was made, and upon which his wealth depends. This, for Buffett, seems more compelling than the idea of the common good reached outside the system that enriches both him and his Berkshire shareholders.
Warren Buffett now lives in a well-spun cocoon, much like the majority of tycoons on Wall Street and legislators on Capitol Hill. Objectivity is forfeited when people sequester their minds in an abstract world of paper wealth – a world where it is easy to justify financial programs and values that cannot work when applied across broad populations. The quasi-Ponzi stock market cannot, by design, work for everyone. In a finite world where limited resources cannot support endless population growth, there must be losers when the game runs out of takers at increasingly elevated stakes. But Wall Street and those who worship in its temples live in denial of simple realities, the truth of that demonstrated empirically in the current financial debacle.
Warren Buffett is not without moral goodness. He has redeeming qualities – a fact that makes his investment in Goldman Sachs all the more dubious. It is Buffett who aims to give the majority of his wealth to philanthropy through the Bill and Melissa Gates Foundation. And it is Buffett who had the financial foresight to point to credit derivatives as a weapon of mass destruction in the financial system. Here is a man who understands the financial game as well as the importance of philanthropy. He has the charity to give away most of his winnings late on his life’s path, but thus far doesn’t have the stomach to recant a system that leverages the global money supply to amplify capital gains for the rich and inflationary burdens for the poor. He doesn’t want to go down as a Scrooge in the annuals of world history, yet he seems content with his leadership role in a system structured to magnify benefits for the few at a relative cost to the many. Nearly every prophet in the Good Book declares God’s displeasure with such outcomes.
If Buffett had the common interest at heart, he could use his financial clout and leadership to work for the replacement of Wall Street with system not tainted by Wall Street’s corrupt history. Investment banking needs new soil if real reform is to take root. There are fifty states in our Union deserving of their share of the revenue Wall Street siphons off as it processes the financial transactions of the world. (Make that point clear to the National Governor’s Association!)
New York City’s sunset is due. It played fast and loose with the public good, willfully thwarting most attempts to create due accountability. When it came to ethics, Wall Street wanted mere form in place of substance. Now it is time to encourage alternatives, assuming that a spineless majority in the U.S. Congress don’t bow to the Wall Street lobby before exploring better ways to invest $700 billion. If the U.S. Congress believes stimulus is essential, it would be better to look to Main Street’s best run corporations as banking platforms than to give new life to the toxic ambitions of Wall Street.
Dozens of Main Street Corporations are sitting on massive amounts of capital. Sadly, they are in the habit of sending large chunks of their cash flow back in the Wall Street quasi-Ponzi game, conveyed in the form of stock buybacks. The incentive for Main Street executives to undergird Wall Street is embedded in a skewed tax code that rewards them for sending America’s wealth to New York rather than investing in infrastructure, technology and employee training. This is a highly inefficient use of capital, especially when quantitatively driven proprietary trading systems extract much of the new capital and convert it into salary, bonuses and perks for New York trading elites. Main Street could stop this exploitation if financial leaders like Buffett helped Main Street exit the Wall Street maze.
Bring on Dell National Bank, First Cisco Bankshares, and the John Deere Investment Bank (and bring on reasonable guidelines for executive compensation). Imagine a new “Integrity Street” on Main Street where corporations worth admiring become competitors to Wall Street. Visualize a non-Ponzi stock market built on aggregated dividends that give the general public its full share of the corporate profitability of America. Put an end to share price appreciation games that engender endless predatory manipulations among Wall Street’s mega-traders. Don’t be silent while Paulson and his plutocratic barons use taxpayer dollars to replenish the coffers of culprits. Even if the bailout is not stopped immediately, it may be possible to cultivate ways to better distribute management of the largesse. Don’t stand by quietly while heavily lobbied members of Congress reinvigorate Wall Street’s culture of greed.
Many of us could become Warren Buffett admirers if he would recant the quasi-Ponzi system and declare that the winners have the moral duty of returning the winnings – public goods for all practical purposes – that were extracted by asymmetrical means from the public estate. He could set the example. This would be far greater charity than anything else he could do. As long as he continues to play a leading role in the Wall Street game, a shadow lies across his reputation, for on every continent where Ponzi style capitalism is dominant, a gap develops between advantaged elites on the inside of the game and the general public. Shamelessly, Wall Street seems unembarrassed by the fact that wealth has become increasingly concentrated in the hands of a few at the same time that worker productivity and business efficiencies have climbed. The fairer age that could have been birthed has instead become an era of economic injustice.
What could be a greater indictment of the system than the outcomes we’ve seen? Indeed, if one goes to the Good Book many of the writers emphasize that real religion for the wealthy is not operationalized in philanthropic alms but in using power courageously to tear down injustices and build new infrastructures of righteousness. Thus, the chaos created by weapons of mass destruction in credit markets gave Buffett a once-in-a-lifetime opportunity to create a remarkable legacy of recovered sight and goodness. But conflicted by his sense of obligation to the investors he has cultivated, and perhaps blinded by the calculus of wealth, the oracle of Omaha shows his short-sightedness. Pity a man so shackled by his game! Pray that he comes to his better senses. I, for one, still want to believe there is true goodness in Warren B., even after so much disappointment.
No one has summed the prospective Buffett legacy any better than an unknown woman writing under the pseudonym “BubblyBubbles.” She posted a comment to MarketWatch on August 23, 2008 as follows: “Warren Buffett, and others like you, I hope you are listening. ...[U]nless you step up to the plate for a benevolent cause with true conviction, you will merely be a side note in history as a symptom and symbol of excess that destroyed our country. Do something of value besides playing a game of how much $$$ you can put on your balance sheet.” (The comment follows a Greg Robb article, “Bernanke sends soothing message on inflation.”)
Perhaps Warren Buffett and all of us need to consider the wisdom contained in the Federalist Papers. These brilliant writings were the catalyst for ratification of the U.S. Constitution. The papers urge us to contemplate our financial recklessness as our nation’s economic autonomy becomes increasingly threatened. Every aspiring financial mogul, every dutiful member of Congress, and every decent member of the American electorate should consider these words by Publius found in Federalist Paper No. 71.
“It is a just observation, that the people commonly intend the PUBLIC GOOD. This often applies to their very errors. ...They know from experience that they sometimes err; and the wonder is, that they so seldom err as they do; beset as they continually are by the wiles of parasites and sycophants, by the snares of the ambitious, the avaricious, the desperate; by the artifices of men, who possess their confidence more than they deserve it...
“When occasions present themselves in which the interests of the people are at variance with their inclinations, it is the duty of the persons whom they have appointed to be the guardians of those interests, to withstand the temporary delusion, in order to give them time and opportunity for more cool and sedate reflection. Instances might be cited, in which a conduct of this kind has saved the people from very fatal consequences of their own mistakes, and has procured lasting monuments of their gratitude to the men, who had the courage and magnanimity enough to serve them at the peril of their displeasure.”
Is anyone on Wall Street or Main Street listening? On Capitol Hill?