Uncle Warren's Bare Tax Avoidance Machine Hot

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How can I say that? Look at Berkshire Hathaway. It's nothing less than the largest tax-avoidance machine ever constructed by mankind.

Giant cash flows come in the door but a relative trickle makes it to the bottom line because Berkshire's insurance operations provide copious means of discretionary income recognition and tax shelter. (Got to keep pumping up those loss reserves, don't ya know?) Moreover, Berkshire pays no dividend, further sheltering the Prairie Sage from taxes on his big share of Berskshire's burgeoning wealth. Will he pay estate taxes? No, he's already avoided them through a deal with the Gates Foundation.
 

 

So a man who's done everything humanly possible to dodge taxes for his whole career gets attention for complaining that his taxes are too low. The elasticity of Buffett's hypocrisy is matched only by the elasticity of the news media's credulousness.
 
(I've got an idea. Why not have Berkshire Hathaway make the S corporation election? If there are too many shareholders, Buffett could just buy out the excess ones. Most U.S. businesses and almost all small businesses are S corporations, and their tax burdens are substantial and rising. Buffett has no tax burden, indeed pays almost no taxes, to hear him tell it. If Berkshire were an S corporation, he'd be paying billions. Come on Warren, put your money where your mouth is!)
 
But I digress. This is just a glimpse of Buffett's hypocrisy. There's more, much more. Through the years, the Cornhusker Contortionist has piously referred to derivatives as financial weapons of mass destruction. You might conclude from that oft-repeated statement that Uncle Warren does not dabble in derivatives.
 
Yet what did we learn this past weekend? That Buffett has got something caught in the ringer. Berkshire Hathaway, it turns out, has $63 billion in derivatives on its books and that's just part of the problem. The financial reform bill would require sufficient capital to be put behind such deals, and force writedowns where capital is lacking. Buffett is lobbying furiously to have existing contracts grandfathered and not apply the new standard retroactively.
 
What does this mean? It means Buffett has been selling naked puts (or partially clothed puts) in large volumes. And you'll recall that naked puts, in particular uncollateralized credit default swaps, were the chief cause of the financial meltdown of 2008. What kind of person could feign financial piety while selling naked puts? A hypocrite, that's what kind.

I have one last Buffett aphorism to offer up: when the tide goes out, you get a chance to find out who's been swimming naked. Is that Uncle Warren's bare butt I see out there in the surf?

 

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