U.S. Markets close in 6 hrs 3 mins

Which Is the Real Warren Buffett?

Aaron Task
Editor in Chief
Fin - Breakout - US

Berkshire Hathaway (BRK-B) shares fell 2% Thursday following David Sokol's sudden resignation, an exit that came amid revelations of his trades in Lubrizol (LZ) prior to Berkshire's bid for the chemical company earlier this month.

Warren Buffett owns about 50.4 million shares of Berkshire, but his immense wealth shields him from the hit. In the accompanying video, Matt, Jeff, Henry and I discuss whether the "Oracle of Omaha's" reputation as America's kindly financial grandfather can remain unscathed.

In 1991, when a bond-rigging scandal at Salomon Brothers compelled Buffett to take the helm of the firm, he told Congress the message to Salomon employees was that he would be understanding if they lost money. But "lose a shred of reputation for the firm, and I will be ruthless."

Buffett appears to have been far from "ruthless" in dealing with Sokol and many questions were raised by his "unusual" response, as we discussed here.

And earlier this week Berkshire disclosed it was forced to write down the value of a number of its investments because of an SEC inquiry into whether the firm was reporting inflated values on its positions.

Other notable events from the recent past include:

Lobbying of Mass Destruction: The Wall Street Journal reported that Buffett actively lobbied last spring to change a proposed overhaul of derivatives regulation. The change was championed by Nebraska Sen. Ben Nelson.
Buffett famously dubbed derivatives "financial weapons of mass destruction" in 2008, but that hasn't stopped Berkshire from amassing a huge derivatives portfolio, which Buffett understandably wanted to protect from new regulation.

Structured by Cows: Long the largest shareholder in Moody's (MCO), Buffett's Berkshire seemingly turned a blind eye as the rating agency put its once-hallowed AAA-stamp on trillions of dollars of subprime loans, credit default swaps and other structured assets that later proved toxic.

Bailout Nation: Buffett was widely hailed for his "Buy American" op-ed in The New York Times in October 2008. Left unsaid was the extent Berkshire benefited from TARP, FDIC debt insurance and the Fed's easy money in the wake of the crisis. Buffett's high-profile investments in Goldman Sachs (GS) and GE (GE) benefited greatly from the government's largess, as did Berkshire's big stakes in Wells Fargo (WFC), American Express (AXP), US Bancorp (USB), M&T Bank (MTB), Bank of America (BAC), Sun Trust (STI) and other financials.

While there's nothing to suggest Buffett has done anything wrong in any of these episodes, they do undercut his self-styled reputation for doing what's right ahead of all else.