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)