It’s great to be the investing king. Two particular events that took place yesterday show us that it’s also good to be friends with President Obama. Businesses owned by Warren Buffett, the Democratic billionaire, are enjoying what could be construed as a light touch from Washington.
The Surface Transportation Board from the government announced on Tuesday what would typically be looked at as good news for Warren Buffett’s Burlington Northern Santa Fe railroad.
A partner in the Van Ness Feldman law firm, Michael McBride, says that regulators “took a restrained action that should nevertheless help an important sector of the economy. Last week, the STB held hearings on critical problems involving railroad service. Compelling testimony was offered that fertilizer shipments, in particular, have been seriously delayed, perhaps especially on BNSF Railway and Canadian Pacific (which has lines in the U.S.). So, instead of trying to run the railroads, the STB ordered BNSF and CP to furnish fertilizer-service data once per week, thus sending a strong signal about the STB’s concerns without actually telling the railroads what to ship where.”
McBride doesn’t even have anything to do with this issue and hasn’t talked about Burlington Northern Santa Fe’s connection to Warren Buffett. And to make things clear, journalists are definitely for regulatory restraint. But it would be excellent to see this restraint when it comes to companies that aren’t owned by Warren Buffett.
Another thing to take place on Tuesday was that a federal judge said that the Department of Justice has to hand over documents related to a decision where the Standard & Poor’s were charged with civil fraud last year. The US government sued the S&P over flawed ratings on mortgage bonds, but didn’t actually charge its rival Moody’s, even though the company’s bond ratings were ultimately identical. Warren Buffett and Berkshire Hathaway have been long held shareholders of Moody’s.
The S&P has argued and provided some compelling evidence – evidence that even included a threat made by Timothy Geithner, former Treasury Secretary that took place after a meeting with the president in the Oval Office – said that it was only targeted because it downgraded the credit rating of the United States back in 2011.
At the time, you can recall that Moody’s continued to maintain its highest rating on US treasury debt. Warren Buffett criticized the S&P publicly for yanking the AAA rating of America. He even opined that the US government’s rating should be quadruple-A.
The S&P might now have an opportunity to learn whether or not Warren Buffett’s endorsement had any role in determining if the government should include Moody’s as part of this case. Truthfully, they never should have brought this case at all, because ratings are merely opinions and nothing more. The ratings themselves only have real power because government regulation forces companies to use them. No matter how misguided government legal theories can be, they should be equally applied no matter what.