Buffett Watch

Warren Buffett's Defense of Goldman Draws Criticism .. and a Defender


Warren Buffett's high-profile defense of Goldman Sachs has provoked sharp reactions this week.

Monday's Buffett Watch post Warren Buffett to CNBC: 'I Don't See Problem' With Goldman's Abacus Dealprompted an unusually large number of viewer comments.  Many of them are negative.

And it's not just CNBC.com users.

Financial Times commentator John Gapper writes, "Investors trust Mr Buffett to distinguish between self-interest and the public interest - something his remarks in Omaha failed to do."

In her Bloomberg column, Buffett biographer Alice Schroeder describes Buffett as seemingly "struck blind" by the money Berkshire is getting from its Goldman investment and "he doesn't seem to understand that this episode will be a permanent mark on its -- and his -- record."

The Street.com's Lauren Tara LaCapra calls Buffett a "hypocrite" on both Goldman and derivatives. 

On MarketWatch, David Weidner offers a parody of Buffett's annual letter to shareholders:  "You know who else gets a bad rap?  Bernie Madoff.  Like I said about Goldman, I haven't seen anything in Madoff's behavior that makes him any more subject to criticism than investment managers generally."

And SmartMoney columnist James B. Stewart writes that while Buffett may have an excellent understanding of Goldman's Abacus deal, "I'm not sure he understands the securities laws or the legal definition of fraud."  Stewart says Buffett's argument that Goldman didn't need to disclose the identity of the deal's counterparties is a "straw horse."  The SEC "didn't file a fraud case because Goldman failed to disclose Mr. Paulson's identity to potential counterparties."  Instead, writes Stewart, "The essence of the alleged fraud is that Goldman let the short seller choose some of the underlying subprime mortgages, failed to disclose that, and instead promoted the idea that an independent third party chose those securities."

Stewart concludes, "Plenty of questions in this case remain unanswered, which is why I believe it's risky for Mr. Buffett to get too far out on the Goldman limb before the facts are known."

It's not all negative.  Buffett's defense of Goldman was itself defended by Andrew Ross Sorkin in the New York Times:

"Have we all been thinking about this the wrong way?  Mr. Buffett’s view — conventional, perhaps, on Wall Street but contrarian on that mythical place called Main Street that Mr. Buffett usually occupies — is worth considering for at least one reason: No one else of prominence has spoken out so publicly in support of Goldman. In his trademark way, he made a plain-spoken case that makes sense."

So, what do you think... vote now.

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