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UPDATE: The Wall Street Journal reports today (link requires paid subscription) that:

“Mr. Buffett, in a bid to win leniency for Berkshire from prosecutors in an unrelated case, directed his outside lawyers several months ago to turn over documents describing a suspect transaction between a Berkshire unit and AIG, people familiar with the matter say. The documents led to the regulatory scrutiny of Mr. Greenberg, the people say, and last month cost him his job.”

“….(Investigators) say Mr. Buffett is expected to tell regulators he was told briefly about the suspect AIG transaction without receiving a rundown on its details. He is also expected to say it was possible to achieve what AIG sought in a legitimate way and that that’s what he assumed would happen.

Still unanswered, however, are questions about what Mr. Buffett may have known about roughly 14 other transactions — involving Berkshire’s General Re subsidiary — that Berkshire lawyers told regulators about while disclosing the deal with AIG. Also unknown is whether the probes might eventually expand to examine activities of other Berkshire units involved in reinsurance, which is insurance that insurers buy to lessen their own risks.

The point of the below post is to question how Business Weak could have two stories on the AIG-General Re situation and not mention Buffett’s name once, despite his obvious involvement. That point still stands. Though the Slate piece excerpted below raises the possibility of issues beyond mere involvement, the post itself did not attempt characterize the nature of Mr. Buffett’s involvement, except to say that it had to be beyond “peripheral,” which the WSJ piece clearly proves. I did not make any other judgment on Mr. Buffett’s involvement in this situation, nor am I doing so now.
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Just when I thought I would have to remove the “Biz Weak” category on account of Business Week magazine’s reasonably good behavior since this blog began, they revert to form.

Specifically, how can Business Week cover the ongoing AIG-General Reinsurance mess and likely audit failures by Price Waterhouse Coopers without even once mentioning Warren Buffett’s name?

Answer: Business Weak (and much of the rest of the business press) has always had a soft spot for St. Warren, because he is against estate tax repeal (but of course, the ultrarich can always shoot their wealth into their own pet foundations–the moderately rich and those who get bad legal advice are the ones who pay), he thinks taxes are too low, he hates the trade deficit more than he seems to like economic growth, and appears to be a moral but (very important) non-religious paragon of virtue.

Maybe Business Weak should get a pass on this. After all, we’ve been led to believe that Buffett isn’t a hands-on guy. He’s not really directly involved in any of this.

“Surprise”–Wrong:

- He’s involved:

CBS MarketWatch.com ^ | 3/7/05 | Alistair Barr
Insurance probes reach top execs-AIG’s Greenberg, Berkshire’s Buffett become involved; By Alistair Barr, MarketWatch Last Update: 3:06 PM ET March 7, 2005

- Yeah, he’s definitely involved:

The Australian | 17 March 2005
AUSTRALIAN regulators are taking on billionaire investor Warren Buffett, the second richest man in the world, over his role in the collapse of insurance giant HIH.

- I mean, he really is involved:

New York Post | 12/31/04 Holly M. Sanders
The widening insurance-industry scandal has reached legendary investor Warren Buffett, long-regarded as an icon of integrity in corporate America. Buffett’s Berkshire Hathaway empire revealed yesterday that securities regulators have requested information from its General Re unit about insurance policies that might be used to smooth out earnings volatility.

In the real world, Slate reports:

The (disgraced former AIG CEO Hank) Greenberg fiasco has dragged in Warren Buffett, because General Re, a subsidiary of Buffett’s Berkshire Hathaway, was the other side of one of the suspect AIG transactions. Buffett is at best a peripheral player in the drama (Ed. Note: This stray point is singularly unconvincing in light of this excerpt’s second-to-last paragraph below). He is scheduled to meet with investigators on April 11, but New York Attorney General Eliot Spitzer’s office has taken pains to note that Buffett is being called in as a witness, not a target. This still may damage Buffett’s reputation. The folksy billionaire and investor par excellence is the self-appointed conscience of the American capitalist democrat. The spirit of the transactions, and Buffett’s public reaction to them, stand in stark contrast to what has come to be known as the Warren Buffett way.

The deal that helped end Greenberg’s career and that now looms over Buffett was a 2000 transaction between AIG and General Re. AIG counted this as an insurance deal but now says that it “has concluded that the Gen Re transaction documentation was improper and, in light of the lack of evidence of risk transfer, these transactions should not have been recorded as insurance.” It appears that General Re profited from AIG’s desire to clean up its balance sheet. Buffett was briefed—briefly—on the AIG transaction.

Did General Re realize the deal wasn’t kosher at the time? And if so, did Buffett know? The obvious—and plausible—defense for both parties is that General Re had no way of knowing that AIG was going to improperly account for the deal.

For most other CEOs, such an excuse might be enough. But is it enough for Buffett? After all, the nation’s second-wealthiest man has used his pulpit to lecture politicians, corporate executives, and his fellow citizens—in plain-spoken and direct terms—on policy and business and etiquette. And on several counts, the behavior of one of his companies seems to have fallen short of Buffett’s standards.

Buffett has been a constant preacher against the nefarious and widespread practice of managing for the short term, engaging in behavior and strategy geared at meeting the quarterly numbers. AIG plainly used reinsurance to make its balance sheets—and perhaps its earnings—look better in the short term.

What’s more, Buffett’s insurance operations have apparently been willing to profit from helping other companies engage in this sort of behavior. Monica Langley reported last week as well that the SEC is looking into a bunch of other General Re transactions with other customers, “apparently meant to look like reinsurance transactions but not transferring risk.”

…….. the AIG transactions plainly failed what Buffett himself had referred to as the “New York Times test” (and which should perhaps be relabeled the Wall Street Journal test). When considering an action, executives and managers should think about how it would look if it were splashed on the front page of the New York Times. So far, this is one test the Sage of Omaha is failing.

Mr. Buffett’s halo may be in need of adjustment.

Oh, and welcome back Business Weak. A conservative religious CEO type would be on the magazine’s cover for news half as meaty.

Financial planners have accurately panned US EE Savings Bonds as a poor investment choice. Now they’re even worse. USA Today reports that newly-issued savings bonds will have fixed instead of variable rates:

Now, interest on EE bonds is adjusted every six months, based on rates for five-year Treasury notes. Starting May 1, investors who buy new EE bonds will earn the interest rate in effect at the time of the purchase for as long as they own the bond. The fixed rate will be based on the 10-year Treasury note.

The change won’t affect outstanding EE Bonds or bonds purchased before May 1. Interest on those bonds will continue to be adjusted every six months. EE Bonds are currently paying 3.25%.

The change also won’t affect the way interest is calculated for inflation-adjusted Savings Bonds, known as I Bonds. Those bonds contain two components: a fixed rate that stays the same for the life of the bond, and an inflation component that is adjusted every six months. I Bonds currently pay a rate of 3.67%.

Treasury made the change to bring interest rates on EE Bonds in line with market rates, Treasury spokeswoman Brookly McLaughlin said…….

There is, however, a floor on how low EE Bond rates can go. Treasury will guarantee that, at a minimum, an EE bond’s value will double after 20 years. That works out to an annual rate of 3.5% for investors who hold their bonds to maturity, Pederson says.

So, 3.5% is the worst you can do (big whoop), but whatever the rate is when you purchase the bond, you’re locked into it (though you can redeem early after a five-year minimum holding period without penalty; if you redeem after more than one but less than five years, you forfeit three months of interest).

At BankRate.com at this very moment, the overnight average for an 18-month CD is 3.93%.

The inflation-adjusted I Bonds mentioned in the USAT excerpt may be worth investigating too. It’s up to you to make choices appropriate for your own situation, and this site does not offer investment advice, yada-yada. To learn more about the different types of US government bonds, including those that many planners would find appropriate in many circumstances, visit the US Treasury Direct web site.

UPDATE: MarketWatch’s Chuck Jaffe weighs in (link requires free registration):
“…maybe I’ll be thinking of buying bonds for grandchildren. But unless something changes the EE bond — or they let the new rules last so long that the situation becomes disadvantageous for the government — chances are I’ll only be thinking about it, because I expect to be better off investing elsewhere.”