Back in June, Warren Buffett's BFF Charlie Munger canned EY, who were happily auditing his Daily Journal Corp, in favor of BDO. Now, we're sure this had absolutely nothing to do with the fact that EY expressed an adverse opinion on DJCO's internal controls when last these two ships passed in the night. And it […]
When you’re a folksy billionaire octogenarian, you can afford to have others do your dirty work. In the case of the Warren Buffet, he has Charlie Munger hate on accountants for anything and everything under the sun.
Similarly, when the SEC comes calling, the Sage of Omaha can ring up Berkshire CFO Marc Hamburg. On the one hand, you might expect WB to shoot the breeze with the SEC employees since they likely share a fondness for a certain film genre.
However, when the conversation turns to business, the old man probably claims that he has an interview on tax cuts, a bridge match with WHGIII or a lunch date with Z-Knowles. This allows him to turn the SEC scamps over to Hamburg who plays a little bit of a bad cop to the Buffet’s chatty, dirty Grandpa. The CFO then lets the SEC know, in no uncertain terms, that they’re barking up the wrong tree:
In an April letter, the SEC asked Berkshire why it was not recording write-downs on shares with $1.86 billion in unrealized losses, all of which had been in that position for at least a year.
Given the duration of those losses, the SEC said they appeared to be more than temporary and as such should have been written down.
In a detailed response, Berkshire Chief Financial Officer Marc Hamburg said most of the losses with more than 12 months’ duration as of December 31 were concentrated in Kraft and U.S. Bancorp, shares it had acquired in 2006 and 2007.
Hamburg said that as of December 31, Berkshire determined both companies had enough earnings potential that their share prices would eventually exceed the original cost of the stock. It also has the “ability and intent” to hold the shares until they recovered, he said.
“We believe it is reasonably possible that the market prices of Kraft Foods and U.S. Bancorp will recover to our cost within the next one to two years assuming that there are no material adverse events affecting these companies or the industries in which they operate,” Hamburg said.
And if this doesn’t work, they’ll just schedule Munger for another speech.
If you piss off a billionaire, there will be repercussions. And Charlie Munger is not a typical billionaire.
He just so happens to be the BFF and business partner of the second richest person in this fair land of ours and since WB is too busy chasing tail with new friends, he recently felt the need to vent at the University of Michigan about, among other things, accountants and how they failed. FAILED US ALL!
The accountants utterly failed us. And by the way, there’s practically no sign of any intelligent reversal of the failure of that profession. I have yet to meet many accountants who are the least bit ashamed for their contribution to our recent troubles. But it was immense. Imagine when Enron comes down to the SEC and says “we want to write a little contract with A, and a little contract with B, and take all the profit we’re going to make from these complicated contracts over the next 20 years into earnings immediately, and put an asset on our balance sheet of $28 billion from signing two pieces of paper.” And the SEC, led by wonderful accountants who studied at great places, [says] “Why, of course you should have that kind of accounting!” What the hell were they thinking? How can anybody have any respectable understanding of human nature without realizing that the kind of people who were going to be tempted by that accounting were not going to be able to resist the temptations? It was disgusting.
Now you might think this is one of those situations where the old man says to you, “I’m not mad, I’m just disappointed.” This is bullshit. Charlie Munger is definitely pissed. He’s not putting all the blame at the doorstep of accountants but you definitely get the impression that if he could, he would.
But why? Why would Mungsy be so pissed? Why would he lump you in with likes of Jimmy Carter, Ryan Leaf and Andy Barker, P.I. (an accountant, no less)? Basically it’s because you people are a bunch of pansies, will politely nod to the whims of the clients you serve and that you’re a bunch of numbers nerds and that you can barely carry on a conversation with another human being let alone understand that greed trumps Debits = Credits:
Partly the establishment accountants want to please the people who are writing the checks. And partly the academic accountants get full of people who overdosed on mathematics. They want everything to be in balance. And they don’t think that that really isn’t rational when creating rules for a human behavioral system. They’re too mathematical and not rational enough when dealing with their fellow humans. You can’t give the average Wall Street CEO really lenient standards of accounting and expect the figures to be good.
Here endeth the lesson.
Charlie Munger on Communism, Botox, and Goldbug Jerks [Motley Fool]