Free Enterprise? Buffett Counts On Bailout

Throughout this ongoing economic crisis, the hardcore anti-bailout crowd crows that everything can be fixed if we just act more like multi-billionaire Warren Buffett.

Apparently, Buffett sees gold where others envision only muck. So, the "Oracle of Omaha" is digging deep--but not too deep, mind you--to acquire ownership stakes in a couple of venerable but wobbly institutions, namely GE and Goldman Sachs.

Some view his buying spree as proof-positive that there's gobs of hearty, private investors out there ready to buy, buy, buy into these sagging financial institutions. Just hang tight, they argue on CNBC and other outlets, because the private investor cavalry will save the day, allowing taxpayers to hang onto the $700 billion required to get the federal economic bailout (sorry, rescue plan) up and running.

I wish that were true. But it isn't.In fact, the shrewd yet homespun Buffett is probably counting on the bailout more than most of us.

By investing at least $5 billion in Goldman Sachs, Buffett is betting a bailout will become law and that the U.S. Treasury will get moving and buy much of the toxic commercial paper on the books of Goldman and many other financial institutions. Free of such nasty and corrosive investments, Goldman's balance sheet should quickly perk up. With Buffett's backing, Goldman is free to pursue its new strategy of being a bank holding company, while continuing to sell fee-generating investment banking services.

Same goes for GE. Buffett expects the bailout to ease the lending burdens of GE's financial unit.It will also alleviate much of the credit crunch, which should free up financing that will make it easier for GE's customers to purchase its goods and services.

Don't kid yourself, Buffett knows the score. That's why he favors a bailout! Believe me, without the distinct possibility of a taxpayer rescue, Buffett doesn't go anywhere near Goldman, GE or anything else. Remember, before a bailout plan surfaced he stopped one of his insurance firm's subsidiaries from insuring bank deposits above the amount guaranteed by the federal government.

And keep in mind that Buffett is only the best-known of a small band of wealthy investors plunking down cash and waiting for bailout relief. Scores of other well-heeled interests are making the same play.

But those who argue that private investment alone is enough to fix this mess can't see past their ideology. Nope, private investors are buying some well-known brand names--JP Morgan Chase and Morgan Stanley for starters--in anticipation of a government-led bailout, not because of some ardent belief in the Free Enterprise system.

This is a painful time and we need public and private capital to save the economy from ruin.
But let's be honest: Warren Buffett can't do it all by himself.

Comments

[UUDDLRLRBASelectStart]

I think a clear distinction needs to be made between "hardcore anti-bailout" and "anti-bailout without accountability."

To use an analogy, the economy has been severely wounded, and the government bailout is the emergency CPR to keep the economy alive. Robert is completely right on that point.

However, the big problem with the bailout and its aftermath is that no one has yet (or seems willing) to address the crucial issue of who and what caused those wounds. There is no hue and cry for catching the criminals involved, like with Enron, WorldCom, etc. earlier this decade.

With a hospital bill this expensive, those responsible for causing those wounds need to be "brought to justice" and pay for this heinous crime -- whether it's politicians, CEOs or flawed legislative policies.

I believe that lack of accountability is a significant driving force behind anti-bailout sentiment, and arguably moreso than blind faith in private investment and resistance to government intervention.

[BryArms]

The financiers are snookering us again. We, the taxpayers, will never see that money once Congress caves in to special interests, (as usual). If we try to get it back by taxing these businesses, then they will take the good parts of their portfolios and flee to other countries. Suckers!

If we use that money to enhance social security, then all of the retirees that lost their retirement funds in the stock market will at least be guaranteed a reasonably comfortable retirement. (The only ones who will still be unhappy are the ones trying to retire to their mansions.)

Finally! Congress has found the money to make social security work.

Let Congress know that if they get fooled by this bailout, then the only thing for voters to do is punish congress the way it was punished for the gulf war.

Bryant Arms

[luziannagirl]

If I understand it correctly, at least some of this mess is the freeze-up of the credit market--- whereby banks and even governments borrow large sums of money to get them over a temporary dry spot in their revenue flow, and then they pay it back as soon as the flow picks up, along with with some amount of interest.

One big problem is that apparently none of these overpaid, pompous economic wizards figured this credit mechanism would ever stop suddenly.

But you know what? My husband and I don't do business that way. Neither did my parents, nor my relatives going back for generations. We all keep a fairly substantial rainy day funds.

It's true, none of us are rich, but we provide well for ourselves and our children, we don't lie, steal, and cheat to get ahead, we don't waste much money on get-rich-quick schemes and bling, we don't go bankrupt, we don't lie awake worrying about paying creditors, we don't die destitute, and we even leave a little something for subsequent generations.

We consider it a moral failing to do any less.

So....why is it we hold such radically different moral standards for the Too-Big-To-Fail Guys?

Those who come pandering to the Little People need to come with more than just tired cliches and folksy accents.