W. Buffet has an answer for Fat Banks that precipitated this Foreclosure Crisis

Warren Buffet the chairperson of Berkshire Hathaway has a smart answer to the tricky problem of the too fat banks that precipitated the foreclosure crisis. He hit out at the devastation brought about by the gluttonous big shots of the finance world who till date remain unaccountable for what they have done. He was harsh in his annual correspondence to the shareholders.

All along Buffet has been critical of the corporate bigwigs who had overreached themselves. The directors had remained smug for many decades. But lately the question is positive – what can be done to act as incentive for proper corporate operations? The debate is on at Washington regarding how to control the financial ogres whose wrong steps brought down the economy on its knees only two years previously.

Last February the Obama government suggested separating the proprietary trading rights of the banks from their other activities of deposit gathering and lending. Other suggestions were the increasing of the capital reserve that the banks would have to keep in the event of losses and also to stipulate how much they can handle to deal with a sudden spate of withdrawals.

Buffet suggested a simpler method of placing a cap on risk taking. He wants to force the lavishly indulged CEO’s to take the responsibility of assessing the risks of their corporations. At stake would be their own wealth! Buffet said, “It is the behavior of these CEOs and directors that needs to be changed," he wrote. "They have long benefited from oversized financial carrots; some meaningful sticks now need to be employed as well.”

This comment of Buffet is nothing new – it is something he has been harping on in his correspondence with investors for a good number of years. The shareholders need be served by such managers who think like they are owners. They are not served properly by the executives who instead of doing this follow a policy of mergers that destroys values. Often they accumulate debt in efforts to multiply returns.

79 years old Buffet is the controlling shareholder of Berkshire and he has been receiving an annual salary of $100,000 for the past 25 years. He took over the reins of the company in 1965 and since then the worth of the firm has gone up at rate compounded annual rate of 20%.

Original Post: Warren Buffet has an answer for Fat Banks that precipitated this Foreclosure Crisis