Buffett Finally Falls Off His High Horse

E-Mail This Article to a Friend >>

NEW YORK ( TheStreet) -- Say it ain't so, David Sokol!

On days like this, I feel like a barefoot boy outside the dugout of the Chicago White Sox (or a courthouse, or wherever it was), waiting for Shoeless Joe Jackson. Has David Sokol besmirched the only truly unspoiled, clean, revered, even liked exponent of American capitalism, his sanctified boss Warren Buffett?

Is Berkshire Hathaway ( BRK.B) now the financial equivalent of the Black Sox, forever sullied?

I guess it is, if you were foolish to believe that it was a sully-free zone in the first place. What the Sokol affair demonstrates is that there is not even a scintilla of ethics left in finance, if there ever was any. If you expected to find ethical purity at the House of Warren, you were looking in the wrong place. It's just not part of the territory.

Now, let's be clear on something. Sokol is not going to the hoosegow over this. He didn't take bribes from Arnold Rothstein to throw the Money Management World Series of 1919. All he did was buy shares in Lubrizol ( LZ) before pitching it to his boss, who then went ahead and bought it.

Hey, he wasn't boss of Berkshire. All he could do was recommend deals to Buffett, just as you and I could by picking up the phone and calling him, I guess. See? No problem. Nothing to interest the regulators, as Sokol points out less than convincingly. (Insider trading happens to be a particular fetish for prosecutors nowadays.) And besides, revered Buffett deputy Charlie Munger owned 3% of BYD Inc. before he "asked me to go look at it," as he said on CNBC. Doesn't that prove it's OK? The implication is that this is pretty much par for the course over in Omaha.

Listening to these somersaults and pirouettes, I came away with a certain feeling of satisfaction. It's now unanimous. Wall Street, including the branch office in Omaha, has no shame. Zero. Sarbanes-Oxley requires that public companies disclose their codes of ethics, if they have any (codes, that is). I think that's silly. Are you going to write a code of ethics for people whose job is to make money any way they can, no matter how obnoxiously?

I hope this finally knocks Warren Buffett off his pedestal, not because he's a bad person, but because he's a bad role model for America's youth, especially the ones who want to go into finance. David Sokol should be their role model, an example of the true face of finance.

Buffett's legacy is harmful in several ways. First is the obvious one, which is that he perpetuates the myth that anybody can get rich picking stocks by doing Buffett-like things. Sure, you can. But most people would do better to put their money in an index fund. All the Buffett cottage industry does is make a living for people writing books like Investing the Warren Buffett Way (a title I just made up; no offense intended if there is an actual book by that title). Efficient market theory maintains that Buffett is an outlier, like the monkey throwing darts at the stock tables (when they used to print stock tables). Even if you don't embrace the efficient market theory as much as I do, you have to admit that most people just don't have the patience or ability to research companies the way he does, or the clout to cut deals as he does.

There is also a tendency to ignore Buffett's habit of talking out of both sides of his mouth on subjects like derivatives. Buffett has called derivatives "financial instruments of mass destruction." In 2002 he said, "I view derivatives as time bombs, both for the parties that deal in them and the economic system." But he had no hesitancy lobbying Congress last year to exempt existing derivatives contracts from financial-reform legislation. The reason was that Berkshire Hathaway had a $63 billion portfolio of just those very "time bombs" that he was publicly denouncing. I guess time bombs are OK when Buffett has them in the trunk of his car.

And now we have a third reason to knock Buffett off his pedestal: His people are as anxious to make a buck by any means necessary as anyone else in finance.

Not to worry. You'll be happy to know that Sokol is about to build a "mini-Berkshire" now that he has left the big one. He wants to start up his own financial company, predicated on the principles enunciated over the years by Warren Buffett.

Let's reiterate those principles:

1. Trading on inside information is OK because it's not really inside information so it's legal and forget about it.

2. Derivatives are terrible things unless I own them, in which case keep your cotton-pickin' hands off my derivatives.

3. I wear cheap suits and give away a lot of money, and my ghostwritten annual reports are bibles of clear-thinking, Midwestern common sense and plenty of smart principles that I don't always follow.

I hope Warren Buffett continues to wear cheap suits and give away lots of money. He owns the greatest chocolate company in the continental U.S. I've been a customer of Geico for 30 years. I've met the man, and I like him as much as the next guy. I just think that it's time to stop worshipping him.

E-Mail This Article to a Friend >>

Gary Weiss has covered Wall Street wrongdoing for almost a quarter century. His coverage of stock fraud at BusinessWeek won many awards, and included a cover story, �The Mob on Wall Street,� which exposed mob infiltration of brokerages. He uncovered the Salomon Brothers bond-trading scandal, and wrote extensively on the dangers posed by hedge funds, Internet fraud and out-of-control leverage. He was a contributing editor at Conde Nast Porfolio, writing about the people most intimately involved in the financial crisis, from Timothy Geithner to Bernard Madoff. His book "Born to Steal" (Warner Books: 2003), described the Mafia's takeover of brokerage houses in the 1990s. "Wall Street Versus America" (Portfolio: 2006) was an account of investor rip-offs. He blogs at garyweiss.blogspot.com.

More from Opinion

3 Warren Buffett Stock Picks That Could Be Perfect for Your Retirement Portfolio

3 Warren Buffett Stock Picks That Could Be Perfect for Your Retirement Portfolio

Wednesday Wrap-Up: GE and Facebook

Wednesday Wrap-Up: GE and Facebook

PayPal Strikes Again, Facebook, and AT&T -- 3 Tech Stories You Must Know

PayPal Strikes Again, Facebook, and AT&T -- 3 Tech Stories You Must Know

How to Invest Like Warren Buffett

How to Invest Like Warren Buffett

50 Stocks That Could Be Shredded If a U.S. Trade War With China Ignites

50 Stocks That Could Be Shredded If a U.S. Trade War With China Ignites