I’ve been pretty busy, so I didn’t get a chance to blog on this story in the Wall StreetJournal from earlier today. But it appears Warren Buffett isn’t exactly bullish on the outlook for bank safety. Isay that because he is reportedly getting out of the business of covering deposits that exceed the FDIC’s insurancelimit. More details:
“Warren Buffett’s Berkshire Hathaway Inc. has told one of its subsidiaries to stop insuring bank deposits above theamount guaranteed by the federal government, dealing a fresh blow to the financial-services industry as it tries toassuage anxious customers.
The subsidiary, Kansas Bankers Surety Co., is notifying about 1,500 banks in more than 30 states that it will no longeroffer a program called “bank deposit guaranty bonds.” KBS is an 18-employee subsidiary of Berkshire Hathaway, accordingto the parent firm’s 2007 annual report. It is one of a handful of firms that offer such insurance, a big selling pointfor banks trying to attract wealthy customers.
“Two people briefed on the matter said the order was made Monday by Mr. Buffett, Berkshire Hathaway’s chief executive.Chuck Towle, a senior vice president at KBS, declined to comment on why his firm was leaving the business. “We havedecided to do so,” he said. “We’ll work with each individual bank and work it out with them.”
“Mr. Towle wouldn’t confirm or deny Mr. Buffett’s involvement, calling it “strictly rumor.” Mr. Buffett declined tocomment.
“Eleven banks have failed this year. Seven have fallen since July 11, a concentration not seen since thesavings-and-loan crisis of the late 1980s and early 1990s. The Federal Deposit Insurance Corp. backs deposits of asmuch as $100,000 on most accounts or $250,000 on some retirement accounts.
“That Mr. Buffett is withdrawing from this insurance market is an indicator of how many in the industry are worriedabout future bank failures.”
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Dear Mike: I believe what you said about “the financial crisis is not over” is true, however, there is a very important question that I don’t know the answer and I didn’t see it mentioned in all your articles: The Fed announced
that it will extend its TAFs and TSLFs to January 2009. Combined, both facilities have ALREADY lent out over $1.5 trillion to struggling financials in the past seven months! So, basically the Fed has swept 1.5 trillion dollars of toxic garbage under the
carpet, and will keep doing that UNLIMITEDLY, therefore I don’t see how bad can this crisis continues (because most of the would-be write-downs will become U.S. Treasuries), please enlighten me and all the readers. My second most important question is
that you and Martin have said “when S&P and Moody strip AAA rating from Ambac and MBIA, the impact would be enormous”. But the market didn’t seem to react to that a whole lot. Why? Thank you! Your loyal reader, Alex p.s. Do you have your own
newsletter that issue buy/sell alerts? I for sure would like to subscribe, if you have one.