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Buffett and Derivatives: Firing Line

Warren Buffett attacks the Obama administration for trying to regulate the very derivatives he has often decried.



) -- Warren Buffett, a big and vocal supporter of President Obama, is adding his veteran voice to the opposition to financial reform. In what seems like an about-face, Buffett is now attacking the administration for trying to regulate the very derivatives he has decried on many occasions.

In 2002 Buffett, also known as the Oracle of Omaha, called derivatives "financial weapons of mass destruction," although that description apparently applies only when they're being used by people not as smart as Buffett and his team at

Berkshire Hathaway

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This brings to mind a famous phrase from George Orwell's

Animal Farm

: "All animals are equal, but some animals are more equal than others."

Buffett last week sent out his agent, Sen. Ben Nelson (D., Neb.) -- well known for the "Cornhusker Kickback" -- to enlighten lawmakers inside the Beltway that derivatives actually serve a purpose and that the financial reform bill as written will hit Berkshire in the wallet. Of course, that can't happen, especially after Buffett has donated more than $75,000 to Senator Nelson's campaigns.

Unfortunately, or fortunately (depending on whether you're Mr. Buffett), the potential "Corn Husker Kickback, part deux" went down in flames with the rest of the bill ... for now.

So I await the president's remarks in Omaha later this week, hammering Buffett and Berkshire for fighting financial reform and sending (gasp!) lobbyists to Capitol Hill to do his bidding.

The main reason the Oracle of Omaha is opposing the proposed reform is that it calls for firms that trade derivatives to keep more capital in reserve in case bad things happen (which, shockingly, they do).

But these regulations would prevent 50-pound heads like Buffett from employing this new reserve capital in other places and making even more money than Main Street could ever dream of.

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But of course, on Main Street we're held to different standards. Banks and other financial institutions demand that we have enough capital to protect them against potential losses in deals we do with them. Go figure. For example there's the old loan-to-value, or LTV, rule of thumb with which many of us are familiar. My broker requires me to have a certain amount of equity or margin in my trading account when I sell a put, for example. We're all subject to some form of margin requirements -- unless you're really smart and know a lot of people in Washington, or you can sign really big checks.

It's easy to get the folks involved in drafting financial reform to do what these 50-pound heads want them to do because many of them have never worked a day in the financial space and have no idea what they're talking about.

One only has to listen to

Treasury Secretary Timothy Geithner's

comments the other day. Gee, that's reassuring.

Don't worry, Secretary Geithner. You're about as qualified as your boss, President Obama, who never worked on Wall Street and never had to run a private-sector business where he had to sweat meeting payroll and providing employee benefits.

The people empowering themselves with financial reform can't even spell CDO, let alone figure out how derivatives help and hurt the market. But I'm not worried, because people like Mr. Buffett will always be close by with the checkbooks to protect their -- um, our -- interests.

Firing Line: In another blatant example of the

Animal Farm

mentality of big supporters of the Obama administration, Warren Buffett's opposition to derivatives regulation recalls the sentence, "All animals are equal, but some animals are more equal than others."

-- Written by Matthew Buckley in Boca Raton, Fla.

At the time of publication, Buckley had no positions in stocks mentioned.

Matthew "Whiz" Buckley is the chief strategy officer of

Options University

, a provider of options education for options traders of all levels. . He is also the founder of Strike Fighter Financial, a business-consulting firm specializing in leadership development, risk management and strategic planning for Fortune 500 companies and related organizations. Buckley flew the F-18 Hornet for the U.S. Navy. He's a graduate of TOPGUN, has close to 400 carrier landings and flew 44 combat sorties over Iraq. After leaving active duty, he worked as managing director of strategy at a Wall Street firm and CEO of a financial media company. He is an internationally recognized speaker and combined his experiences in the military and corporate America in his book "From Sea Level to C Level."