Global Courant 2023-05-07 00:59:34
Berkshire Hathaway CEO Warren Buffett on Saturday attacked regulators, politicians and the media for confusing the public about the safety of US banks, saying conditions could worsen from here.
When Buffett was asked about the recent turmoil leading to the collapse of three medium-sized institutions since March, he launched into a lengthy diatribe on the matter.
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“The situation in banking is very similar to what it has always been in banking, which is that fear is contagious,” Buffett said. “Historically, the fear was sometimes justified, sometimes not.”
Berkshire Hathaway has owned banks since the beginning of Buffett’s nearly six-decade history, and he has moved forward several times to inject confidence and capital into the sector. In the early 1990s, Buffett served as CEO of Salomon Brothers and helped restore the Wall Street firm’s battered reputation. More recently, he injected $5 billion Goldman Sachs in 2008 and another $5 billion in bank of America in 2011, stabilizing both companies.
Ready to act
He remains ready, with his company formidable pile of money, to trade again if the situation calls for it, Buffett said at his annual shareholder meeting.
“We want to be there when the banking system somehow temporarily crashes,” he said. “It shouldn’t. I don’t think it will, but it could.”
The core problem, as Buffett sees it, is that the public doesn’t understand that their bank deposits are safe, even those that are uninsured. Berkshire’s CEO has said regulators and Congress would never allow depositors to lose a single dollar in a U.S. bank, even if they didn’t make that guarantee explicit.
Ordinary Americans’ fear that they could lose their savings, coupled with the convenience of mobile banking, could lead to more bank runs. Meanwhile, Buffett said he keeps his personal funds with a local institution and has no concerns despite crossing the threshold for FDIC coverage.
“The coverage has been very bad, it’s been bad by the politicians who sometimes have an interest in it being bad,” he said. “It’s been bad by the agencies and it’s been bad by the press.”
First Republic
Buffett also targeted bank executives who took unnecessary risks, saying there should be “punishment” for bad behavior. Some bank executives may have sold shares of the company because they knew trouble was imminent, he added.
For example First Republic, that was confiscated and sold to JPMorgan Chase after a deposit run, it sold its customers jumbo mortgages at low rates, which was a “crazy proposition,” he said.
“If you run a bank and screw it up, and you’re still a rich man… and the world goes on, that’s not a good lesson to teach people,” he said.
Berkshire unloaded bank stocks, including those of JPMorgan Chase And Wells Fargosince around the start of the 2020 pandemic.
Recent events have only “confirmed my belief that the American public does not understand their banking system,” Buffett said.
He repeated several times that he had no idea how the current situation will unfold.
“That’s the world we live in,” Buffett said. “It means that a burning match can turn into a conflagration or be blown out.”
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