NPR logo Warren Buffett Fails To Get Derivatives Loophole


Warren Buffett Fails To Get Derivatives Loophole

Warren Buffett. Seth Wenig/AP Photo hide caption

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Seth Wenig/AP Photo

Just because you're one of the world's best-known billionaires and close to President Barack Obama's White House doesn't mean you always get your way.

At least, that's what appears to be the case from a Wall Street Journal story. reports that Warren Buffett's Berkshire Hathaway was seeking legislative language in the financial derivatives regulation bill produced by the Senate Agriculture Committee that would've kept the company from needing to put up more money as collateral for billions of dollars in derivative positions the company has.

But the provision Berkshire lusted after was removed.

WASHINGTON—Senate Democrats agreed Monday to kill a provision from their derivatives bill pushed by Berkshire Hathaway that would have allowed the company to avoid a significant financial hit, people familiar with the matter said.

Sen. Ben Nelson (D., Neb.) initially helped push the provision into a bill passed by the Senate Agriculture Committee last week. It would have prohibited the government from requiring companies to hold collateral against their existing derivatives trades. The change would have aided Berkshire, which has a $63 billion derivatives portfolio, according to Barclays Capital.

Berkshire Chief Executive Warren Buffett has been able to use the company's strong financial position to post little collateral against its big derivatives portfolio, freeing up capital for investing elsewhere.

The provision's demise is a blow to Berkshire Hathaway, which had lobbied strongly for its inclusion, and could bring challenges from other companies who contend Congress can't force them to amend the terms of existing contracts.

As reporter Damian Paletta notes, there's some irony in Buffett not getting the help with the derivatives he sought since he has been famously critical of them.

Mr. Buffett's push was notable because he has warned of the potential dangers of derivatives, famously branding them "financial weapons of mass destruction."

The more conservative, that is, higher collateral requirement is one way federal policymakers hope to reduce the destructiveness of the financial tools.

More collateral would make it more likely companies could pay their obligations if they find themselves betting the wrong way through their derivatives.

This appears to be a case where Buffett's line about financial WMD meets the old Washington wisdom that the position one takes on an issue depends on whose ox is being gored.