Buffett's Derivatives Deal Gets Nixed
(Berkshire Hathaway story updated for latest reports)
OMAHA, Neb. (
) -- President Obama invokes the name of
Berkshire Hathaway's
(BRK.B) - Get Report
every time he wants to bolster confidence in the markets, and now Buffett wants something in return: an exemption from the derivatives legislation working its way through Congress.
It doesn't look like Buffett will get his wish from Washington.
IMF, World Bank Seek Stability (Forbes)
The
Wall Street Journal
reported on Sunday night that Berkshire Hathaway has been working the corridors of Capitol Hill to dilute the proposed derivatives legislation with a "grandfather" clause for the grandfather of the capital markets.
By Monday morning, the
WSJ
was reporting that Democratic senators were not going to give special treatment to Buffett. The Senate reportedly had nixed the exemption from derivatives legislation that Buffett wanted. Democratic Sen. Ben Nelson of Buffett's home state of Nebraska had been helping to push for the exemption.
Berkshire Hathaway wanted the legislation to exempt holders of existing derivatives contracts from having to hold collateral on the contracts, a grandfather clause, so to speak. Berkshire argued that it can cover its own derivatives obligations given the health of its balance sheet.
Berkshire Hathaway holds $63 billion in derivatives, according to data from Barclays Capital.
It's yet another example of the fine line that Buffett and Berkshire Hathaway walk when it comes to the issue of Wall Street and derivatives.
Buffett routinely derides Wall Street practices, yet has now been embroiled in the attacks on
Goldman Sachs
(GS) - Get Report
due to his $5 billion investment in the firm. Buffett also was unfortunately
linked to more Goldman Sachs shenanigans last week when allegations surfaced that a Goldman director had passed on insider information to a hedge fund manager right before Buffett made his $5 billion investment in Goldman.
Buffett and his righthand man, Charlie Munger, have also taken a hard line against derivatives, essentially blaming derivatives for destroying American capitalism.
Buffett said in his most recent annual letter to shareholders that he does not care about the short-term movements up and down in the derivatives contracts which Berkshire owns.
Buffett's Goldman Sachs investment lost $1 billion in value after the recent freefall in Goldman's share price.
While Buffett may not care about the movement up and down in the value of the derivatives contracts, he apparently does care about having to post collateral on the contracts. The bone of contention between Washington D.C. and Buffett on the derivatives legislation is over the requirement to have derivative contract holders post billions of dollars of collateral.
The
Wall Street Journal
reported that David Sokol, chairman of Berkshire's MidAmerican Energy Holdings unit, has been the point man in Washington arguing on Buffett's behalf with senators and other Washington power brokers.
After all those phone calls that Buffett took from President Obama, all the references to those conversations in President Obama's speeches on the markets, and the $5 billion that Buffett invested in Goldman Sachs to save the U.S. economy when it was on the brink, on Monday morning Washington doesn't seem inclined to provide a premium value for Buffett when the derivatives reform is made law.
-- Reported by Eric Rosenbaum in New York.
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