Berkshire Does Not Receive Derivatives Exemption

[Parsad]

Like all institutions, it looks like Berkshire will also be required to put up collateral for derivatives contracts.  Cheers!

 

http://www.cnbc.com/id/36778375

[ericd1]

I'm certainly not an attorney, but I have trouble understanding how a new law can be applied to contracts initiated prior to the change in the law...Doesn't the proposal "interfere with obligations under contracts" ?

 

Retroactive Law

 

A statute that treats with facts or occurrences something that took place before the statute was enacted. While unusual, a retroactive law is only unconstitutional if it impairs vested rights, interferes with obligations under contracts (such as creating new obligations or attaching new disabilities), has the effect of an ex post facto law or bill of attainder, or is prohibited by the United States Constitution. Certain decisions granting new rights to criminal defendants under constitutional law have been given full retroactive effect. While others have been held to be effective only from the time of enactment forward.

[Guest ValueCarl]

Does one believe he has finally shot enough "white elephants," at the same time exposing his owners' to potentially "lethal" weapons of mass destruction in the derivatives space, whereby untold amounts of capital must now be set aside, in order that he seriously ponders PAYING a FAT DIVIDEND like he often requires from his core publicly held companies?

 

Who would like to RECITE the owners manual here while Berkshire capital is being handicapped?  >:(   

[gokou3]

One analyst estimated the amount of collateral required is $8B... that's like 8 months of BRK's earning?  Hardly Armageddon.  I suppose the companies will be allowed some time to come up with the collateral after the bill passes.

[Guest ValueCarl]

One has to just keep wondering while Mr. Buffett continues to GIFT all of his wealth away, "TAX FREE," to the GATES' for their great global order capital allocation skills, which are against the best interests of "The American People," who he has expressed great confidence in for beating the Global Elitists including himself at their own game, will offer his Oliver Twist share owners, "May I have a dividend, or more, please?" to allocate on THEIR own after taxes.

 

This is especially true considering his eight to ten year CAGR has hardly been spectacular considering all the risk factors he continues to lay on his owners. I'm sure one could debate me hard there, but as an owner, it is my right to offer such an opinion.       

[Myth465]

I would guess he would say you know what you are getting when you buy Berkshire and if you want a div then you have hundreds of other stocks to choose from. As of now he is still the largest shareholder by far.

 

I dont care if Prem buys derivatives and I sure as hell dont care if Buffett does. I feel sorry for the guy on the other side of the trade.

Also I dont have BRK for the same reason. I dont see it doubling at this point considering its size and have stocks in my portfolio which could triple. I want a higher return, but thats my problem not his. He warns people every year.

[Guest ValueCarl]

Do you think some of those important railroad investors who stayed aboard aren't expecting one since he took charge of the locomotive?

 

Maybe someone will have him do a calculation at the meeting as to why he hasn't grown big enough to make paying his owners a dividend acceptable at this time.   

[ericd1]

With taxes on dividends likely to go thru the roof next year, I'm not sure investors will want BRK to pay a dividend!

[Guest ValueCarl]

You bring up an excellent point. With sunset provisions taking place in 11, dividend taxes will return to 2001 ordinary income tax rates which were prior to Bush's 2003 tax legislation when he argued against double taxation methods.

 

Hopefully, one doesn't have to be fearful of corporate tax rates rising also. That would certainly cause stocks to take a hit.

 

I'd still be looking for him to do a worst case calculation on the utility of paying his owners a dividend vs. not. Remember, he captured a few white elephants, parts of which have been placed on his trophy case during last year's Safari Hunt. Quite frankly, it was a RUMBLE in the JUNGLE! Between insurance, utilities and railroads acting as Berkshire's core revenue streams, dividends seem to be a likely option as well as probable solution in the not too distant future.           

[value-is-what-you-get]

Is this not a one-time occurence that will require existing positions to be collateralized?  In the future the cost of collateralization will just be added to the premium.

[Guest ValueCarl]

Mr. Buffett's a shrewd user of the English language. One might think he should have been a lawyer like Messrs Munger and Olson chirping in the back ground. You might not need a high IQ to be a successful investor, but you sure do need some damn good lawyers! imo

 

Buffett: Would Rather Avoid Court Fight On Derivatives -Report      04/27 11:09 AM

 

 

 

DOW JONES NEWSWIRES

Warren Buffett has told the Omaha World-Herald that he's confident that any new collateral requirements wouldn't affect Berkshire Hathaway Inc.'s (BRK/A:...) derivatives holdings, because retroactive requirements on existing contracts would be defeated in court.

Still, Buffett told the paper Monday that he'd rather avoid a court fight, and said that's why he wants a new derivatives bill to spell out that existing contracts won't be affected. Senate Democrats stripped such a provision from the bill Monday.

 

Full story at http://www.omaha.com/article/20100427/NEWS01/704279907

[beerbaron]

I suspect BRK is hardly the only company that would oppose to the legislation being retroactive. It would not make any sense anyway... that would mean that tens or hundreds of billions would be put out of circulation for collateral in an economy that badly needs those dollars.

 

BeerBaron