Buffett: Bailout is a 'rescue plan for America,' not Wall St.

It probably won’t come as any surprise to people who oppose the financial-system bailout that the world’s richest man, Warren Buffett, is in favor. He’s got more assets to protect than any of us, and that includes his new $5-billion stake in investment bank Goldman Sachs Group.

Still, Buffett has always been a white hat in the vast sea of black hats on Wall Street. He got rich by being a smart businessman, who owns real companies via his Berkshire Hathaway Inc., as well as by being a brilliant investor.

And he still lives in Omaha -- not on Park Avenue.

CNBC on Wednesday asked Buffett why the average American should agree to a $700-billion, taxpayer-funded bailout of banks and other investors.

CNBC: "Mr. Buffett, we have heard from plenty of people who have written us and called in and said that they're against this rescue plan because they think it's a bailout for Wall Street. You've come out in favor, but how would you explain this to the average American who doesn't have a lot invested in the stock market. What do they have at stake?"

Buffett: "There is no question it is a rescue plan, but a rescue plan for the American economy, not Wall Street. If you look at the people at Lehman or AIG or Bear Stearns, the shareholders have gotten killed and a lot of the people are losing jobs or bonuses and all kind of things. This is designed to help the American economy from going into the ultimate tailspin, when credit is frozen as it has been and when banks are unwilling to lend to each other."

"This is an economic Pearl Harbor and [when] the whole world wants to deleverage the only entity in the world that can match that force is the U.S. Treasury. They are not doing this for Wall Street. This is being done for the American economy."

I wonder: Does that change anyone’s mind out there?

One other point Buffett made in the interview: He’s convinced that the government will make money for taxpayers if it buys bad mortgage assets at current depressed market prices and holds them for a recovery. This from a guy who knows something about reaping huge capital gains on undervalued assets.

Buffett: "If we could do the deal that is available to the United States government and have its staying power, and its borrowing costs, we would make significant money. I would love to have, if they buy the assets at market price, I would love to have 1% of the profit or loss that results from buying these assets from troubled financial institutions."

"If they buy them at market, they will realize a significant profit over time . . . but the key is buying at market prices."

And that leaves it all up to Treasury Secretary Henry M. Paulson and his successor, if this bailout passes: What will they decide are true "market" prices for mortgage junk?

Photo: Warren Buffett (Nati Harnik / Associated Press)

Comments

[Keelaay]

Watch Buffet on Charlie Rose tonight. He is very bullish on the Paulson plan and is insistent that the Govt will eventually make money from the plan.

[JohnKing]

Its so nice to see that Mr. Buffett cares so much for the "little people". Of course his recent investment in Goldman Sachs is first in line for Wall Street Welfare checks.

[subgenius]

Bollo...Rubbish.

It's a bailout for Buffett. If you have paid ANY attention to say Nouriel Roubini (head of NYU Stern Business School, and served as a senior adviser to the White House Council of Economic Advisers and the U.S. Treasury Department) or Joseph Stiglitz (Nobel Memorial Prize in Economic Sciences winner, professor at Columbia University, and former Senior Vice President and Chief Economist of the World Bank) you know this to be the case. Unfortunately apparently the vast majority of this country either a) Don't Care, or B) are TOTALLY swayed by the idiot talking-heads on the mainstream media - whose only qualification seems to be good dentition and expensive hair stylists.

Please, people, EDUCATE YOURSELVES about this idiocy, and then CALL YOUR REPRESENTATIVE AND GET TELL THEM TO VOTE THIS IDIOCY OUT OR THEY WILL BE VOTED OUT.

Then again, I fear it is already to late and the idiots have already won - In which case: Enjoy. You get the leadership you deserve.

[suz]

sub genius (appropriate name)
You nor JohnKing have any real knowledge of Warren Buffett or his investments.
Do you know the salary that he draws each year?
Do you know who actually benefits from the increases in BH?
You both are knee jerk unintellects.
Please become more educated on finance and Warren Buffett before you comment.
It is only your ignorance that is showing.

[Ted Stalets]

The Rescue Plan from Congress is necessary, and I wish it God Speed - but we need to start thinking about the bigger picture. As the world becomes more interconnected (isn't it already?) - we must look to solving global problems for which we have no effective means of democratic governance. For your readers who want to look at the whole forest - and not just a section of the trees - there is a plan that is practical, fair, and doable. For a glimpse - please visit the website of the newly released (Sept 2008) book by Jim Stark - who was president of Operation Dismantle in the 1980s - a Canadian Non Government Organization devoted to global issues.

[catherine turner]

Dear Mr Buffet
I belive you may have your values reversed. We sold our GE stock when GE chose Not to stop trading with Iran. Do you and your company not believe in supporting our countrymen. Or is making money what is important?
I conclude that I will never be as rich in money but will be rich in my Ethical Practices.
Enjoy the blood money.

[Maggie Knowles]

Buffet can't be trusted, he's been involved in the back-room deals and will do what he's told and/or what's best for him. If he cared about America, he would behave differently.

I'm not listening to words anymore, only actions gives clues to the truth. They say it's a bailout for Wall St., that Americans can't get credit. But if you read the bill, it addresses Main St. concerns in a way that there is still no accountability, the banks still don't have to restructure the mortgages to help families stay in their homes if they can afford it (they are "encouraged" to do so), and I'm hearing from business people that they're not experiencing problems getting credit.

Why did they have to add $110B in tax cuts for corporations to get the bill passed?

Over 200 economists say we have other, better choices and NONE of them are considered by our politicians. Why isn't Roubini in Washington DC?

Why isn't Senator Bernie Sanders' amendment being discussed (let the Wall St. folks and the banks responsible for this mess pay the $700B) and why wasn't it attached to the bailout bill? And don't give me the BS about "then executives won't have any incentives..." Screw incentives for executives. Throw the bums out with nothing.

We should rethink our economy. I don't think credit is a good idea, not when it's used to buy groceries or pay the rent and when banks can charge 30% legally and charge us garbage fees. What good is credit if the bankers can put terms in the fine print that don't match the large print?

I have no trust in banks or politicians or large corporations.

What kind of economy do we have if 400 families own 50% of the wealth? So 150 million Americans have to compete for the money these 400 families control? This is so ridiculous.

[Karleigh De Salvio]

PEOPLE!!!!! THIS IS IDIOCY!!!!! the president thinks he's going to be the one to make the change in our government and will finally take some action in America!!! this whole bailout situation is pathetic and useless!!! Americans are struggling and losing so much money and trust in this country that now were finally getting serious about this situation with our representative. hes not going to accept the bailout because hes stubborn and actually has some sense. whats the whole point to bribe our representative if the 700 billion bailout already failed. not only in wallstreet but in America. home owners and hard working people are busting their ass to get through this bailout so if any of you bloggers agree with me of how pittiful bush is being than take some action and let our country learn from our mistakes and maybe next time we wont get into this situation again and our country wont be a reckage and will grow together beautiful and worry free as a nation. im just being logic so bear with me please!!

[TWstroud]

I did not see the interview. Was Warren asked if he would handle the bailout in the same way? I'd like his take on the specifics of the Paulson Plan. To me, it has too little bargaining and too much bending over.

[chicago]

Do any of you know anything about Warren Buffett- clearly not!
Back room deals? Are you kidding me-
Catherine Turner- ethical? You won't find a more ethical business man than Warren Buffett- much more ethical than you could ever become
Maggie Turner you are problem- you vote every 4 years for Republicans and wonder why the rich get richer- gee whiz wake up.
Perhaps if any of you had any sense in the 80's you would have bought BH stock for 5k a share and now would be enjoying the BH stock worth 130K a share.
It is laughable to comment on Warren Buffett when you know absolutely nothing about him.
There are more than enough books about him if you were at all interested in increasing your knowledge about someone and something prior to commenting.

[subgenius]

Hey Suz,

Err sorry to sink your ship, but *I* benefit from BH - I own stock. Doesn't change the fact that this is a terrible plan, and that Buffett is playing for his own benefit...

I am passed the point of caring about my financial position. The system is not sustainable. I have found that *very* few people even understand WHAT MONEY IS and HOW IT IS CREATED (hint - it is not just via the Fed and Tresury). In fact many people don't even realize the Fed is a PRIVATE BANK, not part of government.

Like I said before, the people will get the government they deserve, and it doesn't matter what I think.

[Ransome]

I am relaxing my opposition based on this blog. The bailout is a band aid but perhaps necessary. It does nothing to address the underlying issues and the gut reaction is similar to letting all the criminals out of prison and putting the victims in their place. There clearly other well reasoned approaches but time may be of the essence. It is a little breath-taking that one guy will decide who lives or dies.

That being said, I am disturbed about Reid's loose lips. Insurance companies control a lot of retirement wealth, such as pensions, annuities and 401ks. At least one company has a series of funds of funds that are presented as similar to name brand funds with the inclusion of some mystery meat called insurance products. If these products are synthetics, we could be toast. It probably would not be good to let one of these big fellas fail.

Consolidation has not served us well. The government should take direct action and bust up some of these unholy marriages so that poor decision making in one group does take down 10 other groups under one umbrella. Wishful thinking. There is no such thing as too big to fail when you are fifth in line but there is safety in numbers as far as the economy goes. Instead of 5 guys playing follow the leader, you have 1000 guys competing. This is especially true when innovating.

[Brent A. Pope]

My fellow American Mr. Buffet.
When Countrywide were the first to be exposed to the blame game of the housing crisis, where were the Fed's? Couldn't we have put the brakes on this run away fraight trian that was heading straight to "Wallstreet" via "Mainstreet" The warning sings were everywhere. What ever happened to those "CROOKS" @ Countrywide anyway. I know in a free market, things have to run the course, but to allow this Great Country of our's to go down in flames like it has totally BOGGLES the minds of many many many Americans. Why do the people we intrust with our future and our childrens future, fall asleep at the wheel. Like the good ole saying goes what goes around comes around. The "Fat Cats" should be falling also in this HOUSE OF CARDS.................................................

[Maggie Knowles]

See Mike Morgan's post
http://realestateandhousing2.blogspot.com/2008/09/paulson-calls-in-buffet.html
Tuesday, September 23, 2008

Paulson Calls In Buffet
Very sad times. Remember the Maria Bartiromo interview with Buffet, when he slipped and said Paulson called him on the big Sunday a couple of weeks ago? Many people wondered why Paulson would call a private citizen to discuss Fed matters? Obviously, we now know.

Sham Deal - Buffet gets special stock with a 10% dividend and he gets the right to by another $5B at $115, when the stock was trading at $125 and the deal makers knew it would spike on this kind of news. So why didn't Goldman set a higher price on the stock? Buffet would have never done the deal. He probably cut this deal with Paulson himself when they spoke on that funky Sunday.

Conspiracy? - We have never witnessed anything like this, with rule changes and special deals and the biggest thief in the world, running the financial world. The Buffet deal could only have been done if Goldman had a new business model . . . because the old business model was busted. Voila, they have a new business model as of Sunday night courtesy of King Henry . . . and less than 48 hours later, Buffet come in with $5B.

Someone needs to question that Sunday conversation. Someone needs to question this Sunday's move to bring Goldman under the Fed's wings as a commercial bank. Someone needs to question the very deal struck with Buffet. But no one will.

Main Street or Wall Street? - The price of Buffet's stock is at $4,300 for Class B and $128,800 for Class A . . . because he doesn't want to deal with Main Street. And Warren Buffet stands to lose more in a market crash than any person on the planet. Warren Buffet's deal with Goldman is just another example of the power of Paulson and his Wall Street fraternity.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~
There's more on his blog, click the link above.

[Seniorvoter]

Concerning the possibility that the purchased securities are sold for profit in the future - what would happen to the profits? Offset taxes? Checks sent to taxpayers? Finance spending programs? Who decides?

[Professor Smarba]

Warren Buffet has amassed an astronomic fortune from investments He is ranked by Forbes as the second richest person in the world behind Bill Gates, at least as of September 2007.

When Warren invests in a stock, an army of investors follow suit, automatically creating its own bull rally. Not a prediction, but a fact. Nice strategy! The rest of us are not so fortunate.

So when Buffett says this "Bailout is a 'rescue plan for America,' not Wall St.'...now what?

So what’s the underdog investor to do?

Investors entering this “bailout” dilemma of whether to use the classic buy-and-hold strategy or be a stock picker trying to prosper from the ups and downs of market volatility are both taking unnecessary risks. Risks of losing money...not just paper loses, but hard earned cash. There is another choice...the convertible bond combo.

What a dream market! At least for a handful of innovative

It’s a dream at least for those investors who know that predicting the direction of the market is a waste of time...and money. For the multitude of speculators and gunslingers who insist on fortune telling, like chickens, the consequences come home to roost.

The only thing you can count on in this market is that it will continue to be volatile. In fact, that’s all the profit-takers need to know to flourish.

The blooper here is predicting in which direction that will happen. When a train is travelling at a high speed in one direction it gathers momentum. Regardless of whether it’s ascending or descending, the momentum will greatly influence its continued velocity.

The 'one two punch' strategists welcome volatility. Why? Because they are not afraid of the market. They prosper regardless of the direction of the market...up or down. Volatility only makes it happen faster.

In fact,there is a free book on this strategy offered on www.profittaker.info.

Actually, the main criterion when selecting the convertible security is the volatility of the underlying stock.

In the final analysis, greed is bad...volatility is good.

[dena alicea]

Yes agree this is a economic pearl harbor and there should be a rescue plan also to include all americans not just wall-street but the paying tax payers left out of the rescue. I call this to be wost than a war facing the americans people today congrees needs to sit down in a emergency meeting this is a code red. No amount of forced restructuring or dropping interest rate will help- all A mericans need a vocher or taxcredit directly sent to them now- no more lip-service in a national disaster congress can act very fast and get thimgs donefor those that made millions,billions on wall-street markets will lose as well there can be no winners if some get a bail-out and other are left out. where is the compassion is it only for the rich and big corporations, what about the average american tax-payer do we not count ????. Mr. President: sign a economic rescue tax relief act for all american tax-payers. please do this now before your term is up and leaving office do it for the auto industry as plan.