For those of you wondering whether America’s financial sector has learned a single thing since the crisis of 2008, consider the public statements of one of America’s most prominent investors, Warren Buffett on how great he thinks things are when one or two companies dominate money matters such as mortgages, the very source of the collapse. Buffett wants fully 33% of America’s mortgages financed by a single company, one in which he is a 7% owner.
“They’ve got a sensational mortgage operation,” Buffett said today on Bloomberg Television’s “In the Loop With Betty Liu” program in an interview from the Allen & Co. media conference in Sun Valley, Idaho. “The total mortgage market was at the $3 trillion level not that long ago. If it goes back up to $3 trillion, I hope Wells is doing a third of those.”
Wells Fargo’s bailout was around $25 billion the last time they were in a position to hold so many mortgages without proper risk management – position which is even riskier due to the firms they have acquired post-crisis, such as Wachovia.
“Wells did the best job of the big players in the mortgage market and therefore they’ve garnered a share as the other fellows have fallen by the wayside,” said Buffett, 81, whose firm holds more than 7 percent of the common stock, according to data compiled by Bloomberg.
Wells Fargo’s “best job” included a recent admission of systematically defrauding latinos and African-Americans through intentional predatory lending practices.
Buffett’s calculated cynicism
Buffett has a carefully-pruned public image as one of America’s most successful businessmen, known for his rootsy Midwestern simplicity and philanthropy. In this case, it is clear that his investing principles are divorced from the best interest of the United States, given the obvious tendencies of our giant banking conglomerates to engage in fraud, the headlines of which are coming up fast and furious, more each day.
But if I were Buffett and I had his principles, I would do the same thing. Here’s why: it is plainly obvious that the United States Government has been captured from a political and regulatory standpoint. Too Big to Fail has become Too Bigger-er to Fail-er. Bailouts lead to bonuses, crimes lead to multi-year investigations with no chance of indictment, and America has no taste to break these systemically-dangerous institutions into pieces that will be competitive, functional and less corrupt. This actually makes being in an ownership position of the TBTF banks a great deal. Josh Brown at The Reformed Broker writes today that he and his boss may never trade the Big Bank stocks again – but what about owning the whole game?
Buffett seems not to be betting on the trade of these stocks or on the health of the overall housing market – but on whether America has the desire to unseat these institutions from a rentier position of sucking money away from the American people using regulatory capture, derivatives trickery, and straight-up fraud. He clearly thinks that we could uncover 100 different conspiracies to rob homeowners in Baltimore and 99 other cities like it – and the U.S. Congress would still apologize slavishly to bank CEOs for troubling them about their risky behavior.
I wouldn’t want to own 100 shares, or even 10,000 shares of a megabank in that case – but I would definitely want to own 30% of the action. I would definitely want to be in the capital-owning class that sets the rules of the game, finances the politicians through Citizens United, collects the big dividend payouts, and then calls the Fed and the Treasury whenever a bailout is necessary – either a straight cash bailout or a quantitative easing one.
This type of financial structure won’t work out for you, but it will work great for Warren Buffett. Who can blame him?