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Wednesday, January 2, 2008

Warren Buffett a Liar?

Warren Buffett a Liar?David Merkel at the Aleph blog does an analysis of Warren Buffett's track record of managing his large reinsurance risks and finds it amazing that Buffett says he didn't know the details about the large contract with AIG. In other words, is Warren Buffett a liar?

What Did Buffett Know about the Gen Re Finite Reinsurance Deal with AIG?
--

Start with my disclaimer: I don’t know for sure. Buffett says that he didn’t know about the details, and certainly didn’t approve of the deal. [...]

Personally, I find this amazing for a few reasons. 1) In any dealings with AIG, a smart insurance executive would want to know what was going on. AIG has had a history of getting the better end of the deal in working with reinsurers. Buffett is not dumb, and there had been a decent amount of rivalry between the two companies over the years. 2) Buffett was not “hands off” on the insurance side of the house when it came to large insurance contracts. [...]

The AIG contract was big. AIG is a tough reinsurance negotiator. AIG and Berky have been rivals (Greenberg insulted Buffett on at least one occasion). Buffett watches underwriting carefully, even that of his trusted lieutenant Ajit Jain (a nice guy, really). That makes it really hard for me to believe that Buffett did not have any significant knowledge of the AIG finite reinsurance contract. [...]

I admire Buffett. I have learned a lot from him. In general, compared to most businessmen, he is an honest and open guy who speaks his mind. If he said that he never had any significant knowledge of the contract with AIG, we should give him the benefit of the doubt, maybe. But from my angle, it is inconsistent with the way he has done business generally. [...]
related:
Bloomberg / Jan. 1, 2007:
Buffett May Not Testify in General Re Case -- The billionaire Warren E. Buffett, who is on the prosecution witness list in the criminal trial of Ronald E. Ferguson, former chief executive of General Reinsurance Corporation, may not be called to testify, the government said in court filings Monday.

Mr. Ferguson, 65, is scheduled to go on trial for fraud Jan. 7 in federal court in Hartford. He wants jurors to see documents that he claims show that Mr. Buffett, chairman of General Re’s parent, Berkshire Hathaway, approved reinsurance contracts that prosecutors say helped the American International Group inflate reserves by $500 million in 2000 and 2001, duping investors.

The government argued Monday that Mr. Ferguson’s lawyers should not be permitted to bring up claims of Mr. Buffett’s involvement in their opening remarks, because they amount to hearsay. [...]
:
Feds Object To Claim Buffett Involved In AIG Scheme -- Former executives accused of manipulating financial statements of the world's largest insurer are claiming billionaire investor Warren Buffett was involved in a deal that led to the charges.

But federal prosecutors say Buffett did not approve the deal and are objecting to defense attempts to argue that he was involved. Buffett, one of the country's wealthiest and most admired business leaders, also denies the claim.

Four former executives of Berkshire Hathaway Inc.'s (BRKA, BRKB) General Re Corp. and a former executive of American International Group Inc. (AIG) are charged with participating in a scheme to manipulate AIG's financial statements. Their trial starts Jan. 7 in Hartford. [...]

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