Wednesday, September 24, 2008

Jeff Matthews on Buffett and Paulson

Jeff Matthews has nailed the essence of the Paulson plan and the Buffett buy in Goldman Sachs in one sentence:
More seriously, we wonder this: how is it that Warren Buffett can cut a better deal with the best-run financial company in America than the U.S. Treasury can ask from the worst-run financial companies in America?
And that is right.  Buffett took preference shares and upside.  Paulson does not plan to.  

I would rather own Berkshire than be an American taxpayer.

Oh, I do own Berkshire - and I am not an American taxpayer.

And that is the sweetness in living in Bronte, Australia.




John Hempton


7 comments:

Anonymous said...

Warren is out for the best return on his money. And safety is a big factor. The size of what Hank Paulson proposes to buy on behalf of his countryman is of such size and scope, Warren could not afford.

Plus by buying a piece of Goldman Sachs, he knows Sachs has some of the best analysts who will allow the company to participate in the evaluation and purchase of some of this as of now, out of favor paper. Sharks and gravedancers are lining up to evaluaute and purchase some great deals here 60% to 80% returns.

Wikipedia, Hank Paulson, and read his full background. The Treasury is getting a great mind on the cheap.

OilyGasMiner said...

Greetings down under. The Paulson plan and the Buffett deal appeared to have impeccable timing. Coincidence? I beg to differ. With all the commotion surrounding the bailout I think we forgot to emphasize what a steal Warren was getting for his position in GS. We were all in an uproar when JPM trashed BSC. But since the honest oracle came in the picture we seem to be in awe. I say continue being awe struck ye naïve investors. Perhaps this could be beneficial in the sense that it acts as a precedence for other high rolling investors to follow suit. Just my 2 cents

Anonymous said...

John... After seeing the details announced last night on the AIG loan, I am not as worried about my tax dollars at work.

"American International Group, Inc. (AIG) today announced that it has signed a definitive agreement with the Federal Reserve Bank of New York for a two-year, $85 billion revolving credit facility. Interest will accrue at a rate based on 3-month LIBOR plus 8.50%. The facility provides for an initial gross commitment fee of 2% of the total facility on the closing date. AIG will also pay a commitment fee on undrawn amounts at the rate of 8.50% per annum. Interest and the commitment fees are generally payable through an increase in the outstanding balance under the facility."

http://phx.corporate-ir.net/staging/phoenix.zhtml?c=76115&p=irol-newsArticle&ID=1200447&highlight=

2% upfront, 850bp commitment fee, L+850 margin. The Treasury is also getting subsidiary guarantees in addition to the 79.9% equity stake.

These are some very tough and expensive terms. Even if you assume the loan will not be drawn (which has already occurred), the government will make >$16B on even before the equity stake. (8.5% x 2yrs +2pts upfront * $85B)

I would invest in a fund that could get terms like these on its investments. The Treasury has a great deal of upside.

Anonymous said...

Warren only invested 5 billion in Goldman Sach.

If he had 700 billion in his account, don't you think he would have taken down all of this paper in question?

jm said...

Gee, if you were George Soros -- or a sibling -- you'd be a Bronte Soros.

John said...

Buffet waited until Goldman Sachs was converted into a bank and the full faith and credit of the US was put behind it before he invested.

What he got were "perpetual preferred" securities guaranteed by the US government paying 10%.

He's a parasite sucking the blood of the US taxpayer.

Give me Barney Frank any day.

OilyGasMiner said...

Now John, I wouldn't go so far is to call the man a parasite. Lets face it he's an investor legend

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The content contained in this blog represents the opinions of Mr. Hempton. Mr. Hempton may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Hempton's recommendations. The commentary in this blog in no way constitutes a solicitation of business or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author.  In particular this blog is not directed for investment purposes at US Persons.