10/25/2008 05:12 am ET Updated May 25, 2011

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.