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By Root 780 0

The FDIC has taken on $39.3 billion of failed bank assets (as of September 2008, and there is more to come). The Fed created various special financing programs amounting to hundreds of billions of dollars. The Fed took $29 billion (after using up JPMorgan’s $1 billion on the original $30 billion) of exposure to Bear Stearns’s assets and gave an $85 billion credit line to AIG. If that were not alarming enough, the Fed relaxed its borrowing standards to allow borrowers to present equities as collateral. Benjamin Graham cautioned that if you have common stocks you “must expect to see them fluctuate in value.”40 You now means the U.S. taxpayer.

The Treasury issues new debt to fund the Fed’s liquidity bailouts along with the hundreds of billions (perhaps running into the trillions) of dollars called for by The Emergency Economic Stabilization Act of 2008 (the Paulson Plan). In other words, the government is printing money like crazy. That is inflationary, and inflation weakens the dollar.

The United States is a nation at war. A handful of financial institutions are chiefly responsible for roiling the housing market, the municipal bond markets, the economy, and the dollar.Yet, executives may still earn tens of millions of dollars through stock awards. The Paulson Plan does not require market prices for the assets our Treasury may buy or for the trading books of the institutions it is bailing out.Warren and I proposed that market prices (to restore confidence) should be required along with new capital, but someone else gave Congress a bad education.Wall Street is getting what it wants, and U.S. taxpayers are underrepresented in Congress.Thomas Jefferson warned: “A government big enough to give you everything you want is strong enough to take everything you have.”

The policies of Washington and Wall Street have weakened the dollar. It is unclear whether the United States has the will to pull the dollar up from its tailspin.The United States dollar is less secure in 2008 than it was 10 years ago, and it is weaker than it was 10 years ago. Warren sometimes takes currency positions to hedge this risk. He currently seeks good foreign companies to add operating earnings in foreign currencies. If you know of a good foreign company (understandable business, sound management, favorable prospects, fair price) that is $1 billion or more in size—$5 billion would be even better—please call Warren.

Chapter 13

The Fogs of War, Religion, and Politics

What would happen if Internet communications were disrupted, how would we trade?

—Warren Buffett

to Janet Tavakoli, August 25, 2005

While the rest of the world seemed bent on mutually assured destruction—pursuing wealth through leveraged mortgage loan products, hedge funds, and leveraged buyouts—Warren had already taken steps to do something about the weakening dollar problem for Berkshire Hathaway shareholders. He used derivatives to take positions in the relative strength of foreign currencies, and he looked abroad for well-run companies that earn money in foreign currencies.

On October 25, 2005, Warren received a letter from Eitan Wertheimer, chairman of Israel’s ISCAR Metalworking, saying: “Berkshire Hathaway would be the ideal home for ISCAR.”1 On May 5, 2006, Berkshire Hathaway used Business Wire to announce it had agreed to acquire 80 percent of the tool-cutting company. Two months later on July 5, 2006, the acquisition was completed. Berkshire Hathaway paid $4 billion.2

ISCAR’s main plant is located in Israel’s Galilee around 7.5 miles south of Israel’s border with Lebanon. It does business in more than 60 countries, has a good source of foreign revenues (a hedge against a weakening dollar), and it is a business with products the world needs: cutting tools used with machine tools.The management is in place, and the family is dedicated to the business.

Eitan Wertheimer is the chairman of ISCAR, and 20 percent of the stock remains in the Wertheimer family. Michael Federmann, the Chairman of Elbit Systems Ltd., a Haifa-based electronic defense company, knows Stef