Long before the global financial crisis rocked the world, the seeds of destruction were sown in the shadowy machinery of housing finance. To explain how it happened—and how corporate America still plays with fire—Warren Buffett turns to a surprising example: his own manufactured-housing business, Clayton Homes.
Unlike the lenders who packaged and sold off toxic mortgages during the 2008 crash, Clayton Homes follows a golden rule: Every loan it makes, it keeps. When a borrower stops paying, the loss is absorbed entirely by Buffett’s company, not passed on to some unsuspecting buyer years down the line.
By contrasting this skin-in-the-game model with modern corporate practices, Buffett exposes a dangerous trio of financial illusions: deceptive accounting tricks, inflated executive pay, and the lazy metrics that analysts blindly echo without verification. Beneath it all lies a single, glaring question—one that runs through nearly every modern financial scandal, yet is completely missing from almost every annual report.
