The Obama/Buffet Relationship: Conspiracy or Coincidence?

The following is strictly hypothetical. It is not based on any hard core evidence or findings or investigations. It is strictly conjecture.
But it is logical conjecture, based on the coming together of a large set of circumstances. These circumstances could be strictly coincidental or just another instance of Obama administration cronyism and political maneuvering for political gain, not the best interests of the nation.

Let's start with Warren Buffet. We know that over the past month or so, he has come out strongly in support of President Obama's unhealthy and irrational fixation with increasing the tax burden of the wealthy in this country, claiming that on a percentage basis, he pays less in Federal income taxes than members of his staff.

This obviously has added some degree of credibility to the President's call for higher taxes in the midst of a recession with some voters. Never mind that this is a lame economic policy to pursue while on the brink of another recession and even if implemented, it would have an infinitesimally small impact on the nation's financial situation.

Also, within the past month, late August, Warren Buffet announced that his company would invest $5 billion in Bank Of America. There was universal consensus in the press that this was a sweet financial deal for Buffet, given the terms of the deal, as highlighted in a New York Times article on August 25, 2011:

• Buffet's company, Berkshire Hathaway, will get special preferred stock for its $5 billion investment.
• This special stock will pay a guaranteed annual 6% dividend, a great/impossible return in these difficult economic times for most individual Americans and companies.
• This 6% is guaranteed forever, until Bank Of America goes out of business, or until Bank of America decides to buy back the shares at a 5% premium.
• If Bank Of America does go out of business, Buffet's company would be first in line in any bankruptcy proceedings, ahead of all other creditors, in retrieving part of its investment back.
• Berkshire Hathaway also received warrants for 700 million common shares of Bank Of America stock at  $7.14 per share, good for the next ten years. I believe this means that anytime in the next ten years, Buffet's company can buy up to 700 million common shares of Bank of America for $7.14 even if the market price of the price of these common shares are substantially higher. For example, if the stock price is $14.14 in two years, Buffet can buy 700 million shares at only $7.14 and instantly be almost $5 billion ahead on his investment, exclusive of the 6% annual dividend.
• In fact, an online article from a local Charlotte, North Carolina business journal, the hometown of Bank Of America, estimated that if Bank of America stayed in business for three years and attained a stock price level that it had as recently as 2010, then Buffet's $5 billion investment would grow to $9.9 billion in three years. This comes out to an annualized return of just over 25%, not too bad in these dire economic times.

Obviously a sweetheart deal for Buffet's Berkshire Hathaway company.

But why would Bank Of America do such a deal? Probably because Bank of America is not doing well financially, again as reported in the New York Times article cited above and other news sources:

• Bank Of America's common stock price was down over 30% just in the month before this deal was done, is down more than 50% in 2010, and down almost two thirds since 2010.
• The bank is under intense investigations over its foreclosure practices.
• Its mortgage division has run up billions of dollars in legal fees and defaults on all mortgages are not expected to let up anytime soon.
• The whole mortgage mess was the main reason behind the bank's $8.8 billion loss in its financials in the second quarter of this year.
• The financial losses have caused bank management to focus on selling assets such as some of its international credit card divisions and to downsizing its workforce, including 3,500 job cuts it announced in late August.

This is obviously a company under duress. However, an investment from an investor as widely respected and followed as Buffet adds a tremendous amount of credibility to Bank Of America's public assertions that it is moving in the right direction and that it will survive as a viable financial institution going forward. Short term, the strategy seemed to work in late August as the stock price initially jumped 25% and then settled down to an 8% increase. This move also juiced other financial stocks.

Thus, in the short term, Bank Of America got a positive jolt of confidence and share price increase by Buffet's investment.

Now, where does Obama fit in? Obviously, the only thing that this President is currently focused on is how to get himself re-elected in November, 2012, the rest of the nation's problems be damned. Imagine what would happen if Bank of America continued to free fall financially, so much so that its collapse was imminent:

• As the largest, or one of the largest banks in the nation, and world, depending on how you measure, a collapse of Bank Of America would have catastrophic economic implications, no doubt throwing the country and the world into another deep recession.
• Its collapse would bring into doubt the viability and stability of all financial institutions.
• This situation would surely freeze up credit markets, making business expansion and growth next to impossible.
• No business expansion means stagnant or deteriorating unemployment rates and increasing mortgage defaults.
• The effectiveness of one of Obama's big legislative victories, the Dodd-Franks financial reform law, would be called into doubt if such a catastrophic bank crisis could arise within a year or so of the legislation being passed.
• Citizens, and voters, would have no appetite for another round of bank bailouts even though too big to fail has become even a bigger problem under Obama's watch.

In other words, the economy would be imploding just months before the Presidential elections, certainly dooming his overarching need to get re-elected.

Thus, is it all coincidental or is it, in fact, all related? From a conspiracy perspective, was there a mutual beneficial society troika (troika - any group of three persons, nations, etc., acting equally in unison to exert influence, control, or the like) formed between Buffet-Obama-Bank Of America:

• Obama has to prevent Bank of America from going under at all costs from an election year perspective.
• He calls Bank of America's leaders and says he can get them both a cash infusion and a credibility infusion but it has to be made worthwhile, financially, for that investor to come forward.
• He then calls Warren Buffet up and says he can get Buffet a sweetheart deal down at Bank Of America, a deal that would guarantee a sweet annual rate of return, would hold the promise to make billions more, and would minimize his downsize risk by moving Buffet's company to the head of the line of creditors in case of a bank default.
• In return for some easy, low risk money, Buffet needs to do a little politicking for the President's irrational "tax the rich more" platform and maybe host a few re-election fund raising dinners with Buffet's rich friends.
• Everybody involved in the troika is a winner. Buffet gets a great financial deal, Bank of America gets at least some temporary relief, financially and confidence wise, and the President averts an economic disaster and gets some PR help on his tax plan.

Just a conspiracy theory but not a far fetched conspiracy theory, based on the Obama administration's past relationships with other corporations to further the President's personal political needs at the expense of the taxpayer:

- Most people should be familiar with the disaster that is Solyndra, the California solar panel company that went out of business and took over half a billion dollars of taxpayer money with it. This money came out of the President's economic stimulus program, a program that legally required the U.S. taxpayer be first in line to recover assets and money if a company which received stimulus funds went out of business.

However, it now appears that the Obama administration moved a private investor in Solyndra ahead of the U.S. taxpayer in bankruptcy arrangements. This private investor has been a big contributor and fund raiser for Obama in the past. Conspiracy or coincidence?

- LightSquared is a communications company that wants to build out a satellite wireless communications system. However, there is concern that its technology will have a severe interference impact on civilian and military GPS signals. Thus, Congress scheduled hearings to determine if this was the case and whether the LightSquared effort should be blocked.

A Pentagon general was set to testify in front of a Congressional committee and was to testify that yes, indeed, LightSquared's technology would interfere with Defense Department communications. However, it is alleged, and the General testified to the fact, that the White House tried to get the General to falsely testify that military communications would not be impaired. Turns out that the owner of LightSquared was also a big donator and fund raiser of President Obama's past elections efforts. Conspiracy or conincidence?

- According to a September 23, 2011 article from Politico, in early October, Tom Carnahan will host a $25,000 per person fundraiser for the President's re-election campaign. The Carnahan family has long been a Democratic Party power in the state of Missouri. The article also explains that Carnahan is the owner of an energy development firm, Wind Capital Group, which has received a $107 million Federal tax credit from the Obama administration to develop a wind power facility in Missouri.

Even if no quid pro quo was involved, the appearance of conflict of interest is just as bad as an actual conflict of interest. It just smells bad that someone who gets free Federal tax treatment turns around to host fund raisers for the administration that granted the tax credit. Just a smelly affair. Conspiracy or coincidence, or in this case, a severe conflict of interest?

- And finally, our favorite conspiracy or coincidence company, General Electric. Jeffery Immelt, the Chairman of General Electric always seems to be with the President. He is the chairman of the President's economic council and gives the President credibility that he is a friend of business. Immelt has been a big fund raiser and contributor to previous Obama campaigns.

However, General Electric gets benefits also. The President has not moved to change the tax laws that specifically benefit GE, which allowed the company to generate billions in profits, pay no Federal income taxes, and receive a multi-billion dollar Federal income tax credit in 2010. When GE received TARP funds a few years ago, the program that was supposed to bail out financial firms, GE executives did not have to abide by executive pay restrictions like all other TARP recipient firms.

If it has not already, it would not be a surprise of GE's wind turbine division received some kind of favorable tax treatment, to the American taxpayer's detriment, from the Obama administration in the future. Conspiracy or coincidence?

Even if there are no conspiracies involved, the whole situation just smells. The relationship between politicians, elections, and Federal taxpayer money is way too entangled to avoid even the appearance of conflict of interest.

That is why Step 1, Step 6 and Step 39 from "Love My Country" are so important. Step 1 would reduce Federal government spending by 10% a year for five years. This would reduce our debilitating national debt and reduce the amount of money floating around that politicians can misdirect to their favorite re-election supporters, at the expense of ordinary taxpayers.

Step 6 would prohibit anyone or any organization from contributing to an election campaign unless it was an individual American. No more corporations, PACs, or unions contributing to politicians' campaigns in hope of getting taxpayer wealth, in whatever form possible, in return.

Step 39 would impose term limits on all Federal politicians. Most of these shenanigans occur when a politician wants to get re-elected. By restricting them to one term and on term only, much of the conspiracy, coincidence, and conflicts of interest would disappear, helping to purify the original intend of our election system.

Conspiracy or coincidence? It would make for a good political thriller but it makes for a lousy way to run a country and a government.



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