Age is catching up with Warren Buffett: he and his company are beginning to look fragile

Felix Salmon

It’s a story of the good triple-A insurer and the bad one.

It’s a story of the good triple-A insurer and the bad one. Wearing the white hat is Warren Buffett, Sage of Omaha, every so often the world’s richest man, a person whom both John McCain and Barack Obama said would make a great Treasury secretary, a constant and reassuringly avuncular presence in a world of get-rich-quick chancers and irresponsible wastrels.Wearing the black hat are the villains of American International Group, once the largest and allegedly best-run insurer in the world, now the butt of a million jokes and the subject of a firestorm of outrage and anger – as well as being the recipient of $170 billion in federal funds and guarantees.

But although Buffett never took the kind of outsized risks now associated with the troubled insurance giant, and he never thought it a bright idea to write unlimited amounts of insurance against the financial world imploding, his company, Berkshire Hathaway, is still looking much more fragile than at any point in the past several decades.

For one thing, Berkshire, like AIG, has lost its cherished triple-A status, downgraded by the ratings agency Fitch on the same day that GE suffered a similar fate from Moody’s. Insurance companies are meant to be beacons of stability, but Berkshire, for one, certainly doesn’t look like that in terms of how much it costs to take out insurance against it defaulting.

Credit default swaps on Berkshire Hathaway are trading in the 450 basis points range – which, in English, means that the financial markets simply don’t believe in its fortress balance sheet, and are worried that it might become so overwhelmed with liabilities that it won’t be able to pay its debts in future.

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