Warren Buffett to Dish on Goldman Sachs

Warren Buffett issues his first public words on the Goldman Sachs fraud charges on Friday morning, and is expected to take up the issue directly at this weekend's Berkshire Hathaway annual meeting.
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TheStreet

--

Warren Buffett

issued his first public words in regards to the Goldman Sachs legal crisis on Friday morning, and said he plans to discuss the embattled Wall Street firm at the

Berkshire Hathaway

(BRK.B) - Get Report

annual meeting on Saturday.

In the past few weeks, the Wall Street ethics lightening rod Goldman Sachs has become a reputational pest for Buffett. The businessman with the world's best business reputation has been tied up in the Goldman Sachs fraud case due to his $5 billion investment in Goldman at the height of the financial crisis -- not that Buffett or Berkshire Hathaway did anything wrong.

We've said in the past that

Goldman Sachs is the negative reputational gift that keeps on giving to Berkshire Hathaway, and the late Thursday news that the U.S. government had opened a criminal investigation only added to that gift. It also came shortly before a report in Friday's

Wall Street Journal

that Buffett will speak directly on Goldman Sachs at this weekend's Berkshire Hathaway annual meeting.

Goldman Sachs shares again headed lower on Friday, losing just short of 8% after the criminal investigation news broke.

First, it was the mere fact that Buffett had a huge investment in Goldman -- an investment that was losing money as Goldman shares slid -- that caught attention as the SEC brought its civil fraud suit against Goldman Sachs.

Shortly thereafter, reports surfaced that a Goldman director had passed along insider trading information to the founder of the infamous hedge fund Galleon Group about Buffett's pending investment in Goldman.

Financial Reform: Legal vs. Right (Forbes)

The Goldman-Buffet links came full circle early this week when the financial reform effort that received a huge boost from the negative Goldman press led Buffett to actively lobby in Washington D.C. for an exclusion from pending derivatives legislation --

Berkshire Hathaway has more than $63 billion in derivatives holdings.

Buffett has sent emissaries from his board of directors out twice in recent weeks and onto the airwaves of

Bloomberg

television to defend Goldman and reiterate Buffett's belief in the firm's integrity.

In an interview with the

Journal

on Friday morning, Buffett said, "I expect to get multiple questions about Goldman, and I'll give extensive and complete replies."

PHOTO GALLERY

The Many Faces of Lloyd Blankfein

Berkshire Vice Chairman Charlie Munger, who has not minced his words in the past about the destructive nature of the derivatives from which Goldman has mightily profited, called some of Goldman's activities "socially undesirable," the

Journal

reported. Munger explained to the

Journal

that Goldman was "very competitive in maximizing profits in a competitive industry that was permitted to operate like a gambling casino.... The whole damn industry lost its moral moorings."

Some market watchers and television talking heads were saying on Friday morning that Buffett even might concede at this weekend's Berkshire Hathaway annual meeting that if he had it all to do over again, he wouldn't make the investment in Goldman Sachs. Berkshire Hathaway has been making $900 a minute on its Goldman Sachs investment, according to the

Journal

.

The actual comments made by Buffett and Munger to the

Journal

continued to walk a fine line in supporting Goldman while also lambasting Wall Street. Berkshire Hathaway has also walked a fine line in calling derivatives weapons of mass economic destruction, while holding $63 billion derivatives and profiting from Goldman's marketing of the the most complex Street securities.

Munger made sure that

Journal

readers knew that Berkshire Hathaway continues to believe that Goldman did nothing illegal and that the firm is "more prudent and ethical" than its major Wall Street competitors.

That Munger comment, taken together with the comment that Goldman was very competitive in maximizing profits in a competitive industry that operated like a casino, again showed that Berkshire's brass would like to have it both ways when it comes to Goldman and Wall Street.

The Munger comments can be read as arguing that the rest of Wall Street is still worse than Goldman, and Goldman was only acting naughty because the competitive nature of Wall Street required it to do so.

Munger can say, "the whole damn industry lost its moral moorings," but as a defense of Goldman Sachs, that doesn't carry much weight. Buffett is well-known for his homespun American moral wisdom, and two wrongs still don't make a right.

-- Reported by Eric Rosenbaum in New York.

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