THE WORLD’S third richest man, Warren Buffett, said at the weekend he saw nothing wrong in an allegedly fraudulent $1 billion mortgage deal by Goldman Sachs.
He suggested that losers in the transaction had only themselves to blame for exercising “dumb” judgment.
After weeks of silence on the subject, Mr Buffett delivered an endorsement to Goldman Sachs at the annual meeting of his Berkshire Hathaway business empire in Nebraska. Mr Buffett (79) said he “loved” his own $5 billion investment in Goldman and offered “100 per cent” support to the bank’s chief executive, Lloyd Blankfein.
“I do not hold against Goldman at all the fact that an allegation has been made by the Securities and Exchange Commission [SEC],” Mr Buffett told a gathering of 40,000 of his followers at Omaha’s QWest sports stadium. But if fraud charges were proven, he added, “it’s something more serious and we’d look at that at the time”.
A long-term customer of Goldman, Mr Buffett has enlisted the bank’s help in buying scores of businesses. At the height of the financial crisis in September 2008, he lent $5 billion to Goldman – a loan that yields annual income of $500 million for Berkshire Hathaway.
“We love the investment,” said Mr Buffett, who accepted that the SEC’s charges had damaged Goldman’s reputation. “There’s no question the allegation alone causes the company to lose reputation. Obviously, the past few weeks have hurt the company and hurt morale.” Speaking separately at the weekend, Mr Blankfein said a “callousness” toward clients demonstrated in some e-mails released to the public last week was unacceptable and did not represent the firm.
“There were some e-mails where some people were projecting I would say, at best indifference, and at worst a callousness,” Mr Blankfein (55) said in an interview. While he said those e-mails are not representative of the firm, “it’s inexcusable if 10 people think that way or thought that way”.
Goldman Sachs, which generates more trading revenue than any other Wall Street firm, has lost 21 per cent of its market value since it was sued on April 16th by the SEC over its sale of a mortgage-linked security. It is also under criminal investigation by federal prosecutors, said two people familiar with the matter.
“The firm is guiltless and this is a big preoccupation for me and a big preoccupation for our management group,” Mr Blankfein said.
Mr Blankfein defended the firm’s action. Most of the complex derivatives the firm developed and traded had a “social utility,” he said, while others may have gone too far.
"If the issuants themselves are too complicated, become too illiquid as it turns out that they were, notwithstanding the purpose you may say, 'let's not do those things'," Mr Blankfein said, according to the transcript. "So in hindsight I wish we had not done some of those things." – (Guardian service , Bloomberg )
