Buffett's Investment Isn't Just For The Good Of The Country

I wouldn't go overboard with the thought that Warren Buffet's purchase of Goldman preferred stock is a vote of confidence in the financial system of the United States. I think it's a great example of an astute financier making a good businessman's investment.

He bought a preferred stock with a 10% coupon when Treasury's are yielding less that 4%. The warrants he gets need never be exercised so they are in effect freebies on the prospects for Goldman Sach's future. That's probably a good bet to make, especially if it doesn't cost anything ! Also, I would love a 10% yield on Goldman type paper.

For Goldman, it's an expensive way to de-lever the balance sheet. Before this offering (and the additional offer of some common stock), their leverage ratio was around 23:1. With the proceeds from these deals the ratio goes to roughly 18:1, a good bit of the way towards the required ratio they will have to have as a commercial bank. Earnings are diluted by about a healthy 20%, but their Tier One capital ratio rises to over 13%.

It's a great deal for Everybody's Favorite Uncle Warren. A necessary and fair deal for Goldman, financially and psychologically. But it says nothing about the financial system of the U.S., other than I doubt he would have done it if he thought the bottom was about to fall out completely.

Mr. Buffet gave an interview on Squawk Box this morning and he praised Hank Paulson effusively and said he would want him to stay on as Treasury Secretary in either a Republican or Democratic administration. He also said the current rescue plan is needed and probably as good a structure as any (my interpretation. ) This stamp of approval could well help in the final vote.

Comments

[Freedland]

Don't forget, Berkshire Hathaway will probably not be taxed on 80% of the dividends received from Goldman Sachs if the shares qualify for the dividends received deduction as per the tax code regarding corporations receiving dividends from other corporations. If qualified, Berkshire will receive about $400,000,000 a year of tax free dividends from a total of $500,000,000 in dividends received.

[brenner21]

Warren is legendary for reading all of the fine print. He is also Obama's economic adviser, along with former Goldman-CEO-crooks Robert Rubin (who got Clinton to sign the law allowing banks to sell stock, insurance, whatever....) and Lawrence Summers ("girls don't have the same aptitude for math/science as boys" former Harvard President). Buffett knows his $5 billion (and to him, 5c is not to be scorned) is protected since the bailout is assured).

2 questions:

- Why doesn't Obama fire Buffett for this conflict of interest?

- For his $5 billion he got preferred stock in Goldman which pays him 10% a year at a time when most stocks pay no dividends. Does the $700 billion of our money come with a 10% dividend guarantee? No ...

It's the biggest theft before the final one: Social Security. The media is rolled up into these huge companies. And to quell any unrest, the U.S. Army, in violation of Posse Comitatus, will be deployed to America's streets on Oct. 1st accd'g to ARMY TIMES: http://www.armytimes.com/news/2008/09/army_homeland_090708w/

[falco]

I would image a lot of big money men are going to help out. Otherwise, if left to fail, the layers get peeled back, and the ponzi scheme will be revealed. And all it's merry participants. Who's next, Bill Gates? Donald Trump? George Soros? Where are the Rothschilds when you need them? Between them and Rockefeller, they could bail out the whole world. I mean, it is their banks and system is it not? How about those handful of families who own the private Federal Reserve. Couldn't they chip in for a little payback for the billions a week they make on air?

[slabbyd]

Warren Buffets behavior in the last few days is the most egregious example I've ever seen of the self-interest of the ultra-wealthy being passed off as concern for the common good.

While the effects of the Paulson Plan on the economy of Main Street are certainly up for debate, the effect on Goldman Sachs could not be clearer. All their tens-of-hundreds-of-billions-of-dollars of bad debt are passed off to the tax payer for far more than they are worth. In that process Mr Buffet makes an absolute killing on his five billion dollar investment.

The myth of Warren Buffet has always been that he made his fortune the old-fashioned way through hard work and the purchase of undervalued companies. It is entirely clear now that he has no qualms with participating in the more fashionable method of privatizing the profits and socializing the losses.

This guy needs to be tarred and feathered with the rest of these crooks.

[GrainOSand]

How do you know if someone who calls you friend to your face calls you something far less flattering behind your back?

I worry about Obama on this question as many cozy up to him and try to tie their fortunes to his. He knows he cannot lead a movement of change if he is not elected so there is a necessary amount of calculation and compromise in his effort (that is the part I hate).

Buffett may have embraced you Mr. Obama but he may see you as another pawn to play to serve his own interest. I cannot be certain because I do not know the man but it seems to me if he really cared about you he would not make moves to compromise your position or to give an impression of impropriety. The air around a presidential candidate is rarified I am sure; I hope Mr. Obama keep his wits about him and watches those who smile in his face.


Mr. Obama needs to keep in mind the words of the Undisputed Truth:
http://www.youtube.com/watch?v=mZGUgwzKzEg

He should also consider what the Ojays said:
http://www.youtube.com/watch?v=ZVC2j_Kdw8c

[cylindar]

If Buffet did not put the five Bill into the pot he would have stood to lose a lot more. He is hoping there are suckers out there to help shore up his bad investments. People are so stupid they probably might do it.

[cbeenthere]

Warren Buffet throws loser managers out of their jobs;
he does not have a history of enslaving the human race, and he certainly does not make bad investments.

[NicoleAnon]

Although I have been insulting "The Hammer" Paulson I'm not sure anyone would have done better at this job right now. He knows about financial strategies and how the markets work and that is crucial right now. Although he didn't predict it would get this bad neither did any of the thousands of other economists and bankers who are now criticizing him. And the he seems confident he can do the job as opposed to Bernanke who looks like he would rather be somewhere else and Bush is hiding from everyone because this scares him so much.

And of course I wouldn't be surprised if he is corrupt and dishonest and only trying to help GS but then again, I thought in this country we presume someone is innocent before condeming them.

[Zeje]

NicoleAnon, You might be interested in this article by Michael Hudson: http://www.counterpunch.org

[Eyewitness1]

He knows how the markets work, because he was/is a player in these markets. He is WALL STREET. Giving him credit for being who he is, is as ridiculous as giving someone credit for breathing.

[schatsie]

I am appalled by SECTION 8, that was the most bold and brazen highway robbery I have ever seen for 700 billion dollars....That made me loose all respect and credibility for any REPUBLICAN...

We been here, done that before - with the Savings and Loans and this is exactly the same thing all over again....No transparency, no bailout and don't give me this crap that we know better......IF YOU KNEW BETTER, WELL THEN WE WOULD NOT BE IN THIS POSITION....

We want to know where EVERY PENNY of any of these companies is being spent if we give them ONE DOLLAR of the taxpayers money.... We have had 8 years of this stuff and it is time to bring it to a HALT....

[cartero1]

Of course it will be an even better "businessman's investment " if the bailout is approved and Goldman Sach's stock jumps. No wonder he thinks the bailout is a good idea. If it is such a good idea for the taxpayers why isn't Buffet buying the toxic assets of these financial companies instead of preferred stock?

[ProudLiberalDemocrat]

Vince, you kept telling us that it was OK to buy financials.

You have no credibility any longer.

Thanks, but no thnaks.

[KillTheMessenger]

But he just told you it was still OK to buy financials, at least if you are Uncle Warren!

:-)

[americaforme]

A new shark in the the greatest of all shark tanks. PLEASE.... GIVE US A BREAK!