Tuesday, May 11, 2010
Mr. Buffett & My Economic Coloring Book
The problem for most of us, when it comes to understanding finance and all the related connections, is that we just do not know all the players and their relationship to each other. Today, I am going to give the readers of MONEYTHOUGHTS a glimpse of one of the most interesting connections in the United States.
Remember how I have written about the credit rating agencies, and how I believe that because of their corrupt behavior (giving out their Triple-A rating on all those mortgage-backed bonds) the bond market meltdown lead to the financial crisis that lead to the economic crisis which lead to the loss of jobs and the worst economic situation since The Great Depression of 1930s. Well, today, just for fun, I am going to color in some of those areas in my Economic Coloring Book.
Moody's Corporation is the holding company of Moody's Investors Services. Moody's Investor Services is the credit rating agency that passed out their Triple-A rating to the investment bankers on Wall Street that underwrote the billions of dollars in mortgage-backed bonds. Berkshire Hathaway owns a 19% share of the publicly traded New York Stock Exchange listed Moody's Corporation. The Chairman & CEO of Berkshire Hathaway is no other than Warren E. Buffett considered to be the second richest man in the United States after Bill Gates.
Berkshire Hathaway owns positions of more than 5% in the following corporations that are involved in finance: Wesco Financial 80%, USG* 19%, American Express 13%, Wells Fargo 9% and let us not forget Moody's Corporation at 19%. That along with a sizable piece of preferred stock in Goldman Sachs, and you have our Economic Coloring Book filled in. Please use a BLACK crayon as Mr. Buffett does not like to see his companies colored in RED.
Warren Buffett may act like he is just a simple folk from Omaha, but the truth is a whole lot different. He says he does not understand derivatives, but if you believe that then you should not be reading my blog. With Berkshire Hathaway owning such a chunk of insurance and financial companies, does it make sense that he would not understand one of the most used tools of finance to hedge risk?
* USG is involved in building materials, like sheetrock for building homes.