The Corner

Buffett — Getting It

I’m no fan of Warren Buffett’s politics, but when it comes to finance, I’d back him over the Solons (or should that be Nero’s?) in the Congress anyday. Via the Guardian:

The Nebraska-based billionaire, whose fortune is estimated at $62bn, threw his weight wholeheartedly behind Henry Paulson’s rescue package for Wall Street, arguing that US industry will “grind to a halt” without action.

“Last week, we were at the brink of something that would have made anything that’s happened in financial history pale,” Buffett told CNBC television. “I’m not saying the Paulson plan will eliminate the problems but it’s absolutely necessary, in my view, to avoid going off the precipice.”

Buffett, whose opinions are hugely influential among millions of private investors in the US, said that if the Treasury acts shrewdly by buying banks’ distressed assets at a competitive price, taxpayers will end up as financial winners.

“I bet they’ll make a profit,” said Buffett, who pointed out that hedge funds specialising in junk assets were already picking up mortgage-related securities with a view to making profits of 15% to 20%. He said a positive return was feasible if the government ignores the book value of instruments or the original cost to banks and instead pays the prevailing market rates for the bombed out assets.

“They’ll pay back the $700bn and make a considerable amount of money if they approach it like that,” said Buffett. “I would love to have $700bn at Treasury rates to buy fixed-income securities – there’s a lot of money to be made.”

Buffett’s $5bn investment in Goldman Sachs’ preferred stock was matched by a further $5bn capital raising yesterday as the bank took the opportunity to bolster its balance sheet. Goldman’s shares, which fell as low as $86 last week, rose by 2% to $127.88 during early trading in New York.

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