Prem Watsa, Chairman and CEO of Fairfax Financial, has made a bold bet on falling prices over the next decade according to an article in The Wall Street Journal. Fairfax Financial is an insurance company based in Canada which many have compared to Warren Buffett’s Berkshire Hathaway due to Mr. Watsa’s impressive long term track record. Fairfax posted very strong results in 2007 and 2008 due to large gains in equity hedges and credit default swaps that were taken based on Mr. Watsa’s correct reading of the economy ahead of the Great Recession. Read this article for more details.
Despite paying the largest penalty ever assessed against a financial firm by the Securities and Exchange Commission, Goldman Sachs is still an attractive target for government panels investigating the financial crisis. Goldman agreed to pay a $550 million settlement on July 15 in connection with the Abacus case in which the SEC alleged that Goldman failed to disclose key information regarding the portfolio selection process. Today, the Financial Times reported that Goldman is facing a separate inquiry by the Financial Crisis Inquiry Commission (FCIC) regarding the company’s use of derivatives.
In the CSPAN video shown below, former President Bill Clinton comments on the SEC charges against Goldman Sachs and provides a brief account of his views regarding the problems with the financial system. Mr. Clinton specifically cites John Bogle’s views regarding financial intermediation consuming a greater share of economic output. He also provides some good examples regarding the difference between hedging transactions in derivatives and speculation. Read this article for more information and to view the video.