Buffett Gets It All Wrong On Banks

I understand your argument from the perspective you indicate with the comment " How he can now say the biggest 50 US financial institutions now banks don't deserve to pay back the money they collectively received in order to simply continue as a viable business is beyond me." So your argument boils down to "their was a system bailout of the banks, so a systemic repayment is fine".
But by the same token, part of the systemic failure was through poor regulation and oversight, which is political and should be paid for by the electors of politicians, i.e. the taxpayers. Also the need for a systemic resolution was to avoid a 30s like depression, so the collective argument must be applied accross the board, not just to the banks. Other arguments include things like AIG, GE, GM & others not being banks, yet needing government bail outs too, do you think that there should be a special tax on insurance as well?
Finally where do you think this tax will come from - Are these companies going to happily take lower post tax profits or will the additional cost ultimately be bourne by the banks clients - namely those companies who's shares you are trying to use to become a millionaire?

raba9, it's not spiteful - Banks received a massive service in the form of Governmental support to prevent their collapse. Most services have to be paid for, and this is no different.

Also, you rant about it being a failing of regulation - if I give you a gun, and you shoot someone and they die - who's really at fault? Me for providing you the gun, or you for pulling the trigger? Corporate responsibility is woeful at present on the part of the banks.

I think the bank tax is fair, what is completely unfair is - is that if an ordinary business ran into trouble, neither the banks or the government would give a toss about saving your butt.
It seems to me that bankers and politicians are on a protected spieces list and must be allowed to thrive.

I think Buffet is quite correct, banks did not need to be saved, it was the public that was being saved.
Which banks would actually have gone bust and not been able to get any financial backing, by others or by liquidising assets ?
Take Lloyds as an instance, when another bank was going belly up, they bought the bank, despite apparently being in trouble themselves. Yet we let these morons pay themselves huge bonuses for doing what ?
Buffet and other like minded investors would have stepped in, and worked deals out with Governments anyhow, or foreign banks, that actually are solvent, would have got these banks on the cheap.

raba9 I am in entire agreement with what you say and have thought it for a long time. It has been bash a banker year in 2009 since the politicians like to classify them all as the same. If there were proper regulation and not 3 bodies who did not take responsibility for the banking practices, the UK could be better sheltered from a global shock.

I am not saying the banks did not do anything wrong, only they could have been pulled into line a lot quicker. 110% mortgages are always doomed to failure and buying financial instruments which you don't understand (untraceable foreign mortgages/debt) is not a smart move in anyone's book.

"So c'mon Warren. Give us all a break. Get out of bed with the finance industry and admit that without government intervention, the whole banking industry could easily have been nationalised."

Sorry just also noticed this delightfull tidbit - Anyone know of a company/industry that has been nationalised without government intervention :)

I have long admired Buffett and believe him to be a man of genuine integrety. It cannot be right that the government bail out a bank with a low interest loan which the bank then lends back to the government at a higher rate, make a huge profit and then pay themselves a large bonus for being very clever. Or am I missing something?

According to "the system" its up to the shareholders to decide whether they prefer the banking revenue to be paid out as employee salaries or retained as earnings and reinvested, or to be paid out as dividends.

Warren Buffett tried to control employee pay a Salomon, but didn't have a large enough shareholding to do so. The UK government do have a large enough shareholding but are too timid to pass a resolution limiting pay at RBS & Lloyds on behalf of the public.

Until the shareholders get together to control the employees, (which in general no one shareholder has enough stake to do), then all banks are essenetially run for and on behalf of the employees rather than the sharegholders. For shareholders they are speculative holdings rather than investments (according the the Graham Dodd definition of an investment).

As long as bank employees get high reward without the corresponding level of risk, i.e. get a cut of other peoples' money without risking their own, then as Nick Leeson and others have shown, all banks are liable to collapse at short notice. Just because one hasn't failed for a while doesn't mean the risk has gone away, its still there and sooner or later the inevitable failure will occur.

The suggested justification for high pay of talent drain is nonesense. I am not in banking, but as Jeremy Clarkson would say "how hard can it be?". The average banker is only of average smartness. Surgeons, academics, etc are just as smart, but work in less well paid activities.

The high salaries in banks are proof that markets are not efficient. The thing stopping salaries coming to a sensible market rate is regulation, (you can't just set up a bank easily to get some of the gravy) and so in a regulated market, it also sense that salaries and bonuses should also be regulated to prevent monopoly profits, and monopoly salaries.

Why did the Govts in the UK, USA and elsewhere save their respective banking industries from collapse? Because it was more than the banking industries at stake. If the banking industries had folded then lots of other, "real", economic activity would have gone down the drain with them.

We are all the beneficiaries of the rescue of the banking system, so there are no benefit-based grounds to tax just the banking industry.

As to blame-based grounds, there are so many parties to blame for how the events of 2008 came about that singling out the banking industry itself is simplistic.

The fact that bankers have the market power to appropriate so much of the profit that their businesses make isn't their fault either. Anyone would amass that much market power if they could. It is the fault of the shareholders that they are allowed to get away with it. It's about time institutional shareholders did their job and protected the real interests of the people whose money they manage - mainly us.

These windfall-style tax grabs are an admission of a more general market failure, as they always are. If the other stakeholders won't address that, then it falls to the regulators to do so.

The UK banks paid 36bn pa (multiply for the US) in taxes in the years prior to the crash.

So if you were interested in making balanced policy you'd need to refund a proportion of that. But we're talking venal politicians, voted for by venal members of the public here so it won't happen.

Wow! The Fool has gone foolish. The article is siding with socialising losses and capitalising the gains. The powers that be spread the common myth as if bank collapses would be a bad thing. The stable banks would still remain and take on new business, and for sure the monetary system would change. Banks do not add value, thanks to double entry book keeping they generate funds based on our borrowing since funds are always lent into existence. So, without us there would be no funds anyway. Finally, it is a fact that all debt at some point needs to be liquidated or the whole system collapses. What has happened now is the debt has not been liquidated and according to some we will be having a total deficit of £4.7 T by 2013 which all has to be paid for by average Joe. Buffett says if you do not know who is the patsy in a poker game, it is you. Well in this poker game it seems that average Joe is none on the wiser while a massive wealth transfer has occured. This is financed by not the money he has but will need to earn in the future and pay back through taxation and inflation.