"You only learn who has been swimming naked when the tide goes out---"

[RedEarth]

Warren Buffett: "You only learn who has been swimming naked when the tide goes out -- and what we are witnessing at some of our largest financial institutions is an ugly sight."

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NEW YORK (MarketWatch) -- Warren Buffett's latest annual shareholder letter just arrived. And in these uncertain times, it's more prescient than ever.

Every year, Buffett writes a lengthy letter to shareholders. Devoid of the usual buzzwords and corporate-speak, it's full of original ideas and clever explanations of old ones.

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Three paragraphs into the 22-page letter, Buffett scolded the lending industry's "financial folly" and the effects of "weakened lending practices," about which trouble was foretold in last year's letter.

"You may recall a 2003 Silicon Valley bumper sticker that implored: 'Please God, Just One More Bubble.' Unfortunately, this wish was promptly granted, as just about all Americans came to believe that house prices would forever rise. That conviction made a borrower's income and cash equity seem unimportant to lenders, who shoveled out money, confident that HPA -- home price appreciation -- would cure all problems."

He followed that with an update of one of his most famous quotes over the years, now pertinent more than ever: "You only learn who has been swimming naked when the tide goes out -- and what we are witnessing at some of our largest financial institutions is an ugly sight."

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