Blame the regulators, not banks: Buffett

Billionaire investor Warren Buffett again defended Goldman Sachs, saying faulty government regulations were to blame for most of the economic turmoil of the past few years, not investment banks.

Mr Buffet and and Charlie Munger, Berkshire Hathaway’s top two executives, met reporters in Omaha, Nebraska, a day after taking questions before a crowd of about 37,000 at the company’s annual meeting.

Mr Buffett has been one of Goldman’s biggest supporters before and since the US Securities and Exchange Commission filed its civil lawsuit against the bank last month.

Berkshire holds $5bn (€3.8bn) in preferred shares of Goldman. Mr Buffett said he had no plans to sell those shares because they remained a very good investment and were paying 10% interest a year.

Goldman shares have fallen 22% since the SEC filed its suit on April 16, closing Friday at $145.20. Berkshire holds warrants that would let it buy the stock at a discount price of $115 per share.

The government claims Goldman misled investors about a deal called Abacus, involving complex mortgage-related investments that later plunged in value. Mr Buffett said he had studied the charges against the investment bank and had “no problem with that Abacus transaction”.

The SEC says Goldman misled investors by failing to disclose important information about the Abacus deal. Goldman allegedly did not tell investors that one of its clients, hedge fund Paulson, was betting against the securities.

Mr Buffett said ACA, the bond insurer involved in the Abacus deal with Goldman, was responsible for assessing the transaction’s risks and that it should not have mattered that Paulson was betting against ACA’s interests.

Berkshire vice -chairman Mr Munger said he believed Goldman was the nation’s best investment bank in terms of morality and competency. He said vilifying Goldman would not solve the problems created by what he called faulty government regulation of the financial industry.

“Our problem is that our commercial banks and our investment banks have been regulated with a combination of permissiveness and stupidity,” he said.

Mr Munger compared the bankers that have caused problems to tigers that escaped from the circus and ran amok.

“It’s that idiot tiger keeper that didn’t do his job,” he said. “The government regulatory system has utterly failed us.”

Mr Buffett said the US economy was improving with manufacturing businesses showing the biggest gains, but said housing had yet to improve significantly because of the number of unsold homes lingering on the market.

Buffett said several of Berkshire’s roughly-80 companies had started employing workers, so he was confident the unemployment rate, now at 9.7%, would improve. But he said the hiring was slow so far.

Berkshire owns clothing, insurance, furniture, utility, jewellery and corporate jet companies, which give Mr Buffett insight into the health of the overall economy.

Berkshire also has big investments in companies including Coca-Cola and Wells Fargo.