4 Things to Remember About the Buffett Tax (The Motley Fool)

President Barack Obama allegedly sought Warren Buffett's permission to use his name for the so-called Buffett tax -- the proposed rule that would ensure those making more than $1 million a year don't end up with lower tax rates than middle-income workers. That was smart. The tax might be one of the most controversial proposals of Obama's presidency.

Some say it's a jobs killer. Others say it's class warfare. A comparison to socialism inevitably pops up. The responses are as predictable as they are impassioned.

In the spirit of adding fuel, here are four points about the Buffett tax to keep in mind.

1. Buffett has his own take on class warfare.
"Class warfare may make for really good politics, but it makes for rotten economics," said Congressmen Paul Ryan, referring to the Buffett tax. He's right. Any policy that takes aim at one class is bad economics, if only because it creates the perception that those elected to serve you are out to get you.

But Buffett, the Berkshire Hathaway (NYSE: BRK-B - News) billionaire, has his own take on class warfare: "There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning," he's said in the past.

There are no specifics of how the Buffett tax might work, but initial descriptions outline that its goal is to ensure that the highest earners pay at least the same tax rate as middle-income workers. This isn't about taking one group of taxpayers who already pay abnormally high tax rates and pushing those rates higher. It's about flattening the tax code so that some with the highest incomes don't end up with some of the lowest tax rates, as is now the case.

2. If implemented, the number likely affected rounds to zero.
Several have countered that most people making more than $1 million a year already have much higher tax rates than middle-income workers. "The claim that CEOs are routinely paying lower tax rates than their secretaries is Omaha hokum" wrote The Wall Street Journal. They're absolutely right -- the vast majority of high-income workers have tax rates well above the average rate.

But, as the Buffett tax appears to be envisioned, those earners wouldn't be affected at all. Their tax rates would stay the same. Only those making more than $1 million with below-average tax rates likely face a change. That's a very small group. As Rep. Sander Levin pointed out, just 20,000 people earning more than $1 million a year had tax rates below 15% in 2009.

3. It seems poorly thought out.
Changing marginal tax rates is one thing. That way, the tax on an extra dollar of income only hits that specific dollar.

But it sounds like the Buffett tax is aimed at overall tax rates. That sets up all kinds of madness. Take someone earning $999,999 a year in interest and dividends. Taxed at the normal 15%, that person would currently pay $150,000 in taxes. But if the Buffett tax sets the minimum tax rate on those making more than $1 million at, say, 20%, then earning a single extra dollar would trigger an additional $50,000 tax bill.

See the craziness? $999,999 of income faces a $150,000 tax bill, while $1 million faces $200,000 in taxes. If that's the case, people would rationally jump through hoops to lower their income.

To be fair, this is how it appears on the surface, but no one knows how the Buffett tax might work in practice. There are no details yet.

4. It stands virtually no chance of becoming law.
Nearly everyone has a passionate stance on the Buffett tax. Either it's brilliant and desperately needed, or destructive and dangerous.

Debate is great, but keep in mind that that's all this is -- debate. There's almost no chance that the proposal could become law under the current Congress. Use the Buffett tax as fodder to rant about flaws in either our tax code or elected leaders, but if you're concerned about it actually impacting the economy's bottom line, waste your precious time on something else.

Fool contributor MFHousel. The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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81 Reasons We Love Warren Buffett (The Motley Fool)

Today is Warren Buffett's 81st birthday. To celebrate the Babe Ruth of Investing's birthday, here are 81 reasons we love our hero.

Intricate, occasionally contradictory complexity hides beneath the aw-shucks folksy charm. As a Forbes writer once put it, "Buffett is not a simple person, but he has simple tastes." Many people talk about avoiding the madding crowd, but Buffett actually does it by living 1,250 miles away from Wall Street. He has a fortress-like internal scorecard on all things investing, but a vulnerable, endearing external scorecard on many aspects of his personal life. See his penchant for seeking mother figures. Perspective: "In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497." He is that guy in school who tells you he may have failed the test ... only to bust the top of the curve. His time frame for the long run consistently exceeds his life span. Him saying it better: "Someone's sitting in the shade today because someone planted a tree a long time ago." He's human. He fears nuclear war and his own mortality. He's frequently more adept at business relationships than personal ones. He can hold a grudge. His hero is his daddy. Classic line: "Rule No.1: Never lose money. Rule No.2: Never forget rule No.1." Once branded a stingy miser (rightly or wrongly), Buffett has evolved (assuming it wasn't his intention from the start) into one of the most effective philanthropists I know. After growing his potential givings at a 20% compounded rate per year, he set a plan to give most of it away. Perhaps as importantly, he put ego aside and outsourced the charitable decision making to the Bill & Melinda Gates Foundation. Circle of competence at its finest. "I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years." Contrast that with computer algorithm-based trading, day trading, and some of the moves you've made in your own account. Buffett's smarter than you and I, but he's kind enough to let us feel otherwise. David Sokol was once an heir apparent and arguably Buffett's most trusted operations guy. But when Sokolgate erupted, Buffett stayed true to his word: "We can afford to lose money -- even a lot of money. But we can't afford to lose reputation -- even a shred of reputation." "Derivatives are financial weapons of mass destruction." He said it early, and we are reminded of it often. In a glimpse of the nuance that some commentators call hypocrisy, Buffett uses derivatives himself. But he does so in a way that doesn't threaten the entire financial system and explains why in his annual shareholder letters. He doomed himself from ever holding public office: "A public-opinion poll is no substitute for thought." I like juxtaposing these two quotes: (1) "It's better to hang out with people better than you. Pick out associates whose behavior is better than yours and you'll drift in that direction." (2) "Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway." "You only have to do a very few things right in your life so long as you don't do too many things wrong." He has the ability to resist the allure of the quick fix or quick buck when longer-term dynamics are at play. Not sure if this quote was before or after the Internet: "Let blockheads read what blockheads wrote." For those hoping to become famous and respected, he's a testament that the challenges and doubts keep coming regardless of the length of the track record. He's publicly prevailed so far. An investing truism: "Price is what you pay. Value is what you get." The business side of that investing truism: "Your premium brand had better be delivering something special, or it's not going to get the business." He uses colorful language and analogies when drab jargon could do the trick. Boring example: moat vs. competitive advantage. Not-so-boring example: sex. "Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it." Classic line: "Only when the tide goes out do you discover who's been swimming naked." He backs up his saying, "Our favorite holding period is forever," by keeping past-their-prime subsidiaries others would "spin off to unlock value." His Robin (Charlie Munger) can kick your Batman's butt. He makes loophole-free handshake deals. "Risk comes from not knowing what you're doing." Keep it simple, stupid, quote No. 1: "The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective." Keep it simple, stupid, quote No. 2: "There seems to be some perverse human characteristic that likes to make easy things difficult." The Berkshire Hathaway (NYSE: BRK-A - News; NYSE: BRK-B - News) annual meeting is an unrivaled spectacle in investing, truly living up to its billing as the Woodstock for Capitalists. One of the most succinct summations of why America is great: "There are 309 million people out there that are trying to improve their lot in life. And we've got a system that allows them to do it." Trash-bin-diving caution No. 1: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." Trash-bin-diving caution No. 2: "Time is the friend of the wonderful company, the enemy of the mediocre." He's an eternal optimist in a sound-bite culture that often rewards pessimists. His shareholder letters reveal an artisan-like craftsmanship only seen when the proprietor cares deeply about his creation. The contrarian credo: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." Genius fails: "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact." Like so many great thinkers, Buffett is able to ignore noise and whittle a decision down to its core variables. After he explains those variables, the decision sounds elementary. Why banking can be dangerous: "When you combine ignorance and leverage, you get some pretty interesting results." He allows me to see the word "Buffett" without thinking of Jimmy. Buffett maintains a high thought-to-speech ratio. Buffett's librarian fantasy: "If past history was all there was to the game, the richest people would be librarians." He converts a deadly sin into a virtue: "You do things when the opportunities come along. I've had periods in my life when I've had a bundle of ideas come along, and I've had long dry spells. If I get an idea next week, I'll do something. If not, I won't do a damn thing." Averaging 20% returns for almost half a century results in beating the S&P 500 78:1! Even as he has fewer and fewer meaningful investing options because of the size of Berkshire Hathaway, he continues to wow us. On a chili-dog-and-onion-ring-flavored note, Berkshire Hathaway owns Dairy Queen, my favorite fast-food chain. Many of Buffett's managers were wildly successful entrepreneurs before selling out to Berkshire. Convincing successful, often headstrong, boss-less superstars to voluntarily subjugate themselves and to keep those people motivated and happy is a feat. On a related note, Buffett doesn't micromanage. Good thing, with an empire this large. He gets doubted again and again and again and proves the doubters wrong most of the time. Yet, you never hear him say "I told you so." Well, maybe sometimes he gloats. Harvard Business School rejected him, which led him to study under his mentors Benjamin Graham and David Dodd at Columbia. His "how do you like me now?" statement: "Harvard did me a big favor by turning me down," he said. "But I haven't made any contributions to them in thanks for that." He has become America's de facto investing teacher. And he's done so willingly. Perhaps my favorite Buffett line: "We like things that you don't have to carry out to three decimal places. If you have to carry them out to three decimal places, they're not good ideas." Not that he can't be ruthless, but Buffett tends to look for win-win situations where possible. Contrast that with the Wall Street art of "ripping the face off" of clients. He's often described as a "learning machine," extending his natural abilities and allowing him to make behemoth investing decisions over the span of just hours. He added to Ben Graham's teachings with the help of that learning-machine ability and Munger's counsel. Here's a good place to point out that available-to-all company annual reports are the primary fuel in his learning machine. He reads them voraciously to compare and contrast companies and build his business knowledge base. See the next point. When asked what the most important key to his success was, Buffett answered, "focus." His biographer Alice Schroeder elaborates: He has "focus like you have never seen on anybody else." For good or ill, Buffett's entire life has been dedicated to investing. It's much harder than he lets on. Plenty of business fish in the sea: "There are all kinds of businesses that I don't understand, but that doesn't cause me to stay up at night. It just means I go on to the next one, and that's what the individual investor should do." How many people can pull off being a contrarian by buying shares of Coca-Cola? Even with an investing world full of Buffett students and imitators, he manages to surprise. He takes every legal, ethical advantage available in the current system, but lobbies for a better system. For example, he supports higher taxes for the rich, more severe estate taxes, and a level playing field. As he puts it, "I don't like anything where the bottom 20% keep getting a poorer and poorer deal." He is grateful for the advantages he has had in life -- as many of us have, he won the "ovarian lottery." When he talks, E.F. Hutton listens. Like many geniuses, he is frequently the confounding exception to the rule. For example, "not a dime of cash has left Berkshire for dividends or share repurchases during the past 40 years." And we shareholders thank him for it. Buffett buys what he knows (and frequently loves), but he doesn't overpay out of affection. He has the discipline to wait decades for the right opportunity. He gives credit to his direct reports. Not only is Buffett a great investor and manager, he's one hell of a writer. My jealousy grows. He once picked up a date in a hearse he co-owned. Before having his money work for him, he worked for his money early on with a series of jobs, schemes, and ventures. These included a paper route, selling chewing gum door-to-door, a pinball business, a sales job at J.C. Penney's, caddying, marking up refurbished golf balls, and founding a horse-racing tip sheet. It's very possible the house you live in is worth more than the house Buffett lives in -- the house in Omaha he bought in 1958. Over the years, he has relied on a similar set of answers to oft-asked questions. That his philosophy has stayed stable throughout that time is remarkable. His wealth has bought him the ultimate trophy: He does whatever he wants to do just about every single day. He's the outsized calming influence a lot of us need. From his biography Snowball: "If a tornado were barreling straight toward Kiewit Plaza [where his office is], Buffett would say that things were 'never better' before mentioning the twister." Anyone who can make the hyper-opinionated Charlie Munger regularly utter "I have nothing to add" must be saying something impressive. He fully expects this list to one day reach well into the triple digits. And I look forward to adding those lines. Happy birthday, Mr. Buffett!

Fool contributor on Twitter. The Motley Fool owns shares of Coca-Cola and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway and Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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20 Questions for Warren Buffett (The Motley Fool)

It's that time of year again: Warren Buffett is auctioning off a lunch -- with himself. The eBay auction ends this afternoon. Last year's winning bid hit $2.6 million. As of Friday morning, the top bid was $2.3 million (proceeds go to charity).

Most of us don't have that kind of money. Even if we did, $2 million is a bit steep for a meal, regardless of whom it's with.

But what would you ask Buffett if you had his ear for a few hours? Here are 20 things I'd want to know.

1. You've been extremely open over the years. You give interviews. You write op-eds. Your annual meetings attract tens of thousands. Yet you haven't written a book. Why?

2. It's rumored that you keep around $500 million in a personal portfolio that invests in situations too small for Berkshire Hathaway (NYSE: BRK-B - News) to touch. How has this portfolio done over the years?

3. Your partner, Charlie Munger, has said that if you remove just a few of Berkshire's top investments, its long-term track record is pretty average. Some have used this to claim that at least part -- maybe most -- of Berkshire's success has been a fluke. Is there any merit to that?

4. A lot of Berkshire's success has relied on the decentralization of subsidiaries. That, in turn, is dependent on your ability to find trustworthy managers. But the David Sokol ordeal shows that this isn't fail-proof. Do you worry that a manager could "slip through the cracks," so to speak, and cause irreparable harm to Berkshire? Also, where does the buck stop at Berkshire?

5. You've said in the past that it's a "virtual certainty" the U.S. will experience a nuclear terrorist attack. Where do you get these odds, and how do similar Armageddon probability calculations influence how you manage Berkshire's portfolio?

6. Is whoever replaces you at Berkshire going to have the same investment approach as you do? Would you ever pick a replacement whose style was fundamentally different from yours, but that you still had confidence in?

7. What five laws or regulations could be removed, revamped, or created to help the American economy?

8. A recent paper from MIT talked about how business change and innovation is happening faster today than ever before. How do you find companies with sustainable business models in a world that changes overnight?

9. Berkshire hasn't altered its shares outstanding count in a meaningful way since you took it over decades ago. It hasn't needed to raise equity capital, rarely has it used stock when making acquisitions, and you personally haven't needed liquidity. If you could go back several decades, do you wish your partnership would have just bought the entire company and kept it private?

10. When you started your investment partnership in 1956, there were no large hedge funds, no high-speed traders, and no readily available platforms to access company information. Did that make stock mispricings more common than today? If so, is it even possible for someone today to replicate the success of your early years ?

11. If you could go back 50 years, what industry do you wish you had added to your circle of competence?

12. What's the biggest misconception about the way you invest? What does the media repeat about you that just makes you want to bang your head on the table?

13. If you were to teach a one-semester class on investing, what would the syllabus look like?

14. What investment paradigms have changed over the years? In other words, what used to be an ironclad rule that no long applies to today's economy?

15. Munger says your greatest talent is that you're a "learning machine" -- that you never stop updating your views. What are the most interesting things you've learned since the financial crisis hit three years ago?

16. You're an unapologetic long-term bull on America. But nothing works in certainties. What do you think is the biggest threat to our economy's long-term success?

17. Besides Ben Graham, Philip Fisher, Charlie Munger, Bill Gates, or anyone in your family, who has had the most influence on your thinking?

18. Bill Gates has said that he wants to be remembered for his philanthropy just as much as his contributions to technology. Do you feel differently, given that you've donated the bulk of your fortune to foundations that aren't associated with your name?

19. Be honest. Have you ever Googled yourself?

20. After his lunch with you a few years ago, Mohnish Pabrai said, "The best things about Buffett have nothing to do with investing, but everything to do with leading a great life." Tell me, how do you live a great life?

What would you ask Buffett? Better yet, how do you think he would answer some of these questions? Sound off below.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor TMFHousel. The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of eBay and Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Buffett: Hypocrite Miser or Philanthropic Master? (The Motley Fool)

Hedge fund legend Michael Steinhardt was on CNBC yesterday. As usual, he had much to say and held little back. One of my favorite observations: When he started in 1967, "you had to be a special money manager to run a hedge fund because you were expected to do well. It's a very different world today." So true.

Among the more controversial comments was aimed at Warren Buffett's philanthropic efforts. Says Steinhardt:

"[Buffett] is the greatest PR person of recent times. He has managed to achieve a snow job that has conned virtually everyone in the press to my knowledge, and it is remarkable that he continues to do it. ...

"As a great measure of the man's wonder, he gave away 2.5 cents for the first 70-some-odd years of his life. He gave away nothing. And then in one fell swoop he gave away almost all of his money, thoughtlessly, to one guy. Thoughtlessly! And from that moment on he became the greatest advocate to philanthropy. He pitched to all the bumbling billionaires to do the same thing. And many of them did. ... What does that say? I think that's worth reflecting. ... I gave much more of it away much earlier than he did."

Well, sort of.

The claim that Buffett gave away "2.5 cents" during his first 70 years isn't really accurate. Buffett and his late wife, Susie, started the Buffett Foundation -- later renamed the Susan Thompson Buffett Foundation -- in the 1960s, which gave away tens of millions. He gave away $134 million in 1999 to "unnamed charities," and had been donating $5 million per year to Ted Turner's Nuclear Threat Initiative for years, on top of a $50 million matching gift. Tens of millions more went to charitable causes directed by his children.

And while it may not have come until late in his life, donating the bulk of his fortune had been Buffett's plan since he was in his 20s. He explained in a 2006 interview:

"When we got married in 1952, I told Susie I was going to be rich. That wasn't going to be because of any special virtues of mine or even because of hard work, but simply because I was born with the right skills in the right place at the right time. ...

"We were totally in sync about what to do with it -- and that was to give it back to society. In that, we agreed with Andrew Carnegie, who said that huge fortunes that flow in large part from society should in large part be returned to society. ... Certainly neither Susie nor I ever thought we should pass huge amounts of money along to our children."

But Steinhardt's big question still remains: Why did Buffett wait so long to donate most of his money? Why not start decades ago, giving the bulk of his Berkshire Hathaway (NYSE: BRK-A - News; NYSE: BRK-B - News) stock away over time?

This, too, isn't a secret. Buffett has explained why, and it makes a ton of sense:

"I always had the idea that philanthropy was important today, but would be equally important in one year, 10 years, 20 years, and the future generally.

"And someone who was compounding money at a high rate, I thought, was the better party to be taking care of the philanthropy that was to be done 20 years out, while the people compounding at a lower rate should logically take care of the current philanthropy."

Why donate millions today when you can donate billions tomorrow? When you can compound money at 20%+ per year, delaying made perfect sense. Had he given away the bulk of his fortune when he was a multimillionaire in this 30s, the philanthropic impact would have been admirable, but not astounding. By waiting until he was worth $50 billion, the effect is almost unprecedented. Classic thinking of a long-term investor.

As for the "thoughtless" move of donating his wealth to the charity of Microsoft co-founder Bill Gates, Buffett has tackled this criticism before, too. According to his biography, The Snowball:

"I sat down and thought about who could do a better job dispensing the wealth than myself. It's really quite logical. People ... are always saying, Who should handle my money? And they quite willingly turn their money over to people with a certain expertise. But they don't seem to think about doing that very often in the philanthropic world. They pick their old business cronies or whomever to administer wealth after they're gone, at a time when they won't even be able to observe what's happening. ...

"It was clear that Bill Gates had an outstanding mind with the right goals, focusing intensely with passion and heart on improving the lot of mankind around the world without any regard to gender, religion, color, or geography. He was just doing the most good for the most people. So when the time came to make a decision on where the money would go, it was a simple decision. "

Steinhardt asked for reflection. Hopefully, this provided some.

What do you think?

Fool contributor Motley Fool Inside Value picks. Berkshire Hathaway is a Motley Fool Stock Advisor pick. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Berkshire Hathaway and Microsoft. Motley Fool Alpha LLC owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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How Goldman Treated Warren Buffett (The Motley Fool)

"Every day that Goldman does not call our preferred is money in the bank," Warren Buffett said last year. "Our preferred is paying $15 per second ... so as we sit here... tick tick tick ... its $15 in the bank. I don't want those ticks to go away."

Sadly, they're going away. As has been expected, Goldman Sachs (NYSE: GS - News) called Berkshire Hathaway's (NYSE: BRK-A - News; NYSE: BRK-B - News) preferred stock investments on Friday.

This story begins in September 2008, when the entire financial system, including Goldman, neared collapse. Buffett swarmed in, buying $5 billion worth of preferred stock in Goldman (and $3 billion in General Electric (NYSE: GE - News) a few days later) on enviable terms: The preferred stock yielded 10% and could be called (canceled) by Goldman only at a 10% premium to par. Buffett also received warrants to buy 44 million Goldman shares at $115 a share. After being given the green light by the Federal Reserve on Friday, Goldman is now repaying Berkshire's preferred stock, canceling what has been expensive capital.

How'd Berkshire fare in this venture?

It's easy to get caught up in the big numbers ($15 per second!), but keep things in perspective. Berkshire has earned roughly $3.7 billion profit on a $5 billion investment over 2.5 years, which equals a return of about 25% per year.

This is a spectacular return, of course. But it, too, needs perspective. Goldman announced Berkshire's investment on Sep. 23, 2008. The Dow, closing at 10,854 that day, has since returned roughly 6% per year including dividends. Yet just a month later, on Oct. 23, the Dow was trading at 8,200. Anyone who invested in a simple index fund that day has earned about 19% per year since -- still less than Berkshire's Goldman investment, but not remarkably so. Move out to March 2009, and the Dow was around 6,600. Those who bought an index fund back then have since earned 37% per year -- better than Berkshire's Goldman investment, even adjusted for the shorter time frame.

Or here's a non-hypothetical example. Buffett sold shares of ConocoPhillips (NYSE: COP - News) in the fourth quarter of 2008 to, as he himself notes, fund Berkshire's investments in Goldman and GE. There were likely some tax considerations in this move, but Conoco shares have since returned roughly 25% annually -- the same return earned from the Goldman investment they helped fund.

This is shameless cherry-picking with the benefit of hindsight. Guilty as charged. But it highlights an important point: There's an opportunity cost to every investment. Judged against alternative investments that could have been made during similar time frames, Berkshire's investment in Goldman looks good, but not great. And those alternatives (a diverse group of blue chip stocks) could arguably be looked at as significantly safer than a single investment in an overleveraged investment bank, even if the latter came in the form of preferred stock.

Then there's the issue Buffett biographer Alice Schroeder brought up a year ago: Financial gain aside, was Buffett's alliance with Goldman -- now a company most view as a symbol of moral hazard, regulatory abuse, and downright fraud -- worth it? "Buffett swapped his reputation at a cheap price," Schroeder writes. "It is painful to watch Buffett behaving like a hostage to Wall Street, damaging himself by defending investment banks and saying flattering things about Goldman in a way that contradicts any principled view of the securities business."

Buffett's partner Charlie Munger has shown shades of this contradiction. Last year, Munger was exceptionally critical of Lehman Brothers' behavior, saying "the whole place was pathological about its extremeness." Yet on the same day he defended Goldman by saying:

Goldman was in a world where Congress legalized all types of derivatives. It's an inherently dangerous world. Given that world, I see no reason to think Goldman misbehaved in some horrible fashion. Everyone was doing it, and it's only natural to increase your moneymaking activities when you can do so legally.

Yes, Lehman went bankrupt, and Goldman did not (although a little bailout influenced that outcome). Yet it's difficult to reconcile Munger's two views from a moral standpoint other than acknowledging that Goldman pays Berkshire $15 per second, and Lehman does not.

I don't mean this to be overly critical. In the end, Berkshire's Goldman investment worked as planned. That plan, though, may not have been as lucrative as some assume. As Schroeder notes: "The money wasn't enough. Goldman outsmarted Buffett in this deal."

Think otherwise? Sound off below.

Fool contributor Motley Fool Inside Value selection. Berkshire Hathaway is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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