A fascinating Wall Street Journal article about the Los Angeles Dodgers and owner Mark Walter describes a financial empire built around insurance companies, private investments and transactions involving Walter-controlled entities that are now drawing scrutiny from federal regulators. The way INSURANCE FLOAT appears to have been incorporated into that empire is, to me, the most fascinating part of the story.

Walter went to Creighton, a few miles from Warren Buffett's Omaha home, and clearly understood one of Buffett's great insights: insurance float is extraordinarily valuable capital.

But here's the crucial distinction.

Float isn't shareholder capital. It's money associated with insurance liabilities, with the insurer's real capital sitting behind it as the shock absorber.

Buffett's genius was investing that enormous pool while protecting the relatively small amount of capital that ultimately stands behind the policyholders.

What happens when that same basic concept is pushed into increasingly aggressive private credit and affiliated investments?

The insurance liabilities provide the enormous funding base. Private credit puts that money to work. Borrowers can add another layer of leverage. And suddenly a relatively small amount of actual insurance capital may be standing behind an enormous and increasingly complex web of financial exposure.

That brings me back to Jamie Dimon's warnings about “hidden leverage.”

IS THIS WHAT JAMIE MEANS???

As an example the WSJ reports that two Walter-controlled insurers uncovered more than $20 billion of previously undisclosed affiliated investments, while federal prosecutors and the SEC investigate the relationships.

I've read estimates that more than $1 TRILLION of Insurance Float could be invested in forms in "private credit". I think this is what Jamie is warning about


So perhaps the bigger story isn't that Walter “used insurance float” to build the Dodgers.

It's that insurance liabilities can create an enormous funding base, while the real capital ultimately at risk is much smaller.

If that capital is invested conservatively, you've got Warren Buffett's genius.

If increasingly leveraged, illiquid and interconnected investments are built on top of it, you may have found one place to look for the hidden leverage Dimon has been warning us about.

After shoring up the banks which are generally awash in capital and the watchful eye of everyone--this is where the scoundrels migrated.

And don't even get me started on how the Dodgers ruined MLB competitiveness spending twice or more the cap WITH THIS MONEY!