At the highly popular annual shareholders meeting of Berkshire Hathaway (NYSE:BRK), Warren Buffett came out strongly in defense of Goldman Sachs (NYSE:GS) over the fraud allegations leveled against them.
Buffett told shareholders that while Goldman has been hurt by the charges, he reminded them that they are far from being proven yet.
The allegations center around Goldman Sachs purportedly deceiving IKB and ACA in Abacus 2007 – which was a highly complex mortgage-backed derivative – to the benefit of Paulson & Co, a large hedge fund.
What is new about what Buffett is saying concerning the inquiry is the culpability of ACA and RBS by doing stupid tings or not even understanding what they were getting into.
Concerning ACA’s ABN Amro unit, Buffett said they started insuring synthetic debt structures they were clueless about, and he was harder on RBS, where he said: “It’s a little hard for me to get terribly sympathetic that a bank made a dumb credit deal.”
As far as there being some type of shenanigans going on with Goldman shorting a specific position, Buffett gave another lesson: “When we trade with them (referring to Berkshire with Goldman Sachs), they could very well be shorting a product, they do not owe us a divulgence of their position more than any reason why we need to explain what we are doing with our position.”
Buffett added he couldn’t begin to think he understood in bond insurance what those on the opposite side of the trade were thinking.
What is Buffett saying in a nice way here? From the SEC to those charging them with fraud, they have no idea what they’re talking about concerning these types of deals, and it wasn’t fraud on the part of Goldman Sachs but companies getting over their heads in areas they didn’t understand.
He also lectures on how these deals are worked out, and revealing shorting positions by Goldman is a part of doing business undercuts the attempt to make it look shady, rather than how that type of business is operated.
It’ll be interesting to see how things go forward now that Buffett has made one of the boldest statements I’ve ever heard him make when it involves a government entity.
