With Fannie Mae and Freddie Mac securely in the embrace of Treasury, and Lehman Brothers Inc. wavering, it was easy to overlook Warren Buffett's implicit acknowledgement that the banks continue to face serious problems.
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Buffett reportedly ordered Berkshire Hathaway Inc. unit Kansas Bankers Surety Co. to cease insuring deposits over the Federal Depository Insurance Co.'s limits, according to a Wall Street Journal story. The move, which comes after the unit may have lost money on the failure of Columbian Bank & Trust Co. of Topeka, Kan., speaks volumes about where he sees the world of retail banking, which has already witnessed 11 failures this year.
Smaller banks use KBS and its peers as a means to offer wealthy customers the peace of mind that their deposits are as secure as they would be if in a larger bank. Consequently, Buffett's call to pull out of the business yanks the rug out from under these community banks, and in theory could result in wealthy customers pulling at least some of their deposits. Therefore, KBS' move -- also in theory -- adds another problem to already troubled institutions.
Buffett isn't the first financier to see the glass as half empty. Last month, Wilbur Ross appeared on CNBC predicting a thousand bank failures and compared the current circumstances to the savings and loans crisis of the early 1990s. The difference between the two men's views is simple: Ross offered a solution, the "good bank, bad bank" model, but Buffett hasn't said much in the last month. When Buffett most recently spoke to CNBC this week, as Dealbreaker noted, he seemed depressed by the current financial circumstances. That's the problem with being an oracle: Folks pay attention to your moods. - Matthew Wurtzel
See story from The Wall Street Journal
See related KBS story from CNBC.com
See earlier story about Ross from Dealscape
