According to Berkshire Hathaway (NYSE:BRK) director, Thomas Murphy, cited by Bloomberg News, Warren Buffett has little concern over the large stake Berkshire holds in the giant financial firm, regardless of the current fraud charges against them.
Murphy stated, “He’s not concerned with the investment at all. He has to see what’s going to happen on it, but I think he has great confidence in Goldman.”
The assessment by Murphy was made from a phone conversation he had directly with Buffett.
A side issue has risen concerning the investment of Berkshire into Goldman as a director reportedly tipped off a manager of a hedge fund of the $5 billion investment before it became known publicly, although that’s completely separate from anything else concerning the investment and current fraud charges against Goldman.
As details of the fraud charges against Goldman become clearer, the certainty of them are diminishing, as the possibility of poor judgement and inexperience may have been more the core of the issue than actual illegal activities.
Of course if that is true, it would be a poor reflection on the politicians and the SEC who seemed to opportunistically present the case at the time when lawmakers are trying to push through legislation which would regulate markets even more. The actual event happened in 2007 and has been known about for some time, making it a real possibility this was politically motivated as far as the timing of the revelation goes, and to me it’s wrong if lawmakers are this fixated on passing the legislation that they could destroy the lives of individuals who may have done nothing legally wrong, and to continually smear Goldman because it’s so easy to do at this time, and bears no consequences. In other words, politicians thought this was a sure thing, and now that it’s out there for everyone to see, there are more questions concerning the validity of the case than originally thought.
Another new element brought out by Murphy concerning the alleged wrongdoing was the actual players involved. Murphy mentioned all of them absolutely knew the game being played, and there wasn’t anyone that was a buyer or seller who wasn’t sophisticated in doing these types of deals.
The fraud charges are centered around the role Goldman may have played in how they represented Paulson & Co. concerning the transaction. As everyone knew Paulson was involved, the question becomes whether Goldman misrepresented the position Paulson had taken on the CDOs. There was nothing secret about the collateral behind the CDO and that Paulson had been the ones that had made that determination.
It’s whether Goldman made ACA think Paulson was long or not. If not, it’s hard to see the case against Goldman holding together, although it will assuredly be pushed for a resolution by the SEC if it’s found they aren’t standing on as sure footing as they thought.
On Goldman’s side, they will probably press for a settlement to get it behind them, but they do have to be aware there could be other charges coming against them which they may have to defend, and settling all of them could do a lot of harm to them if that’s what is always expected, even if the charges are somewhat dubious.
Warren Buffett knows all this and the complexity of CDOs. So the current attack on Goldman doesn’t phase him much, and it isn’t the first time a company he owns a stake in in this sector has been under fire.
For now he’ll just bide his time and let the media feeding frenzy quiet down, and from there he’ll make the decision on how to proceed with Goldman. I think he’ll keep the stake in the company unless something extraordinary emerges that isn’t known publicly.
