September 24, 2008 – 2:41 pm

If the United States had lost the war against Saddam Hussein, the dictator’s revenge could not have more ruthless, his pillage so predatory, his  decimation of the public coffers more deliberate, nor would it have been such a wicked betrayal.

Some of the most conservative retail investors have traditionally followed the moves of Warren Buffett once they become public. Many articles have been written about this. Warren Buffett does not rely on blackbox algorithms or chaotic stochastic process models to determine the stocks he buys. His no-nonsense roll-up-your-sleeves-and-invest-only-in-what-makes-sense attitutude made him the richest man in the world as well as one of the most trusted and respected. Today there are many 20 to 40-year-old men named Warren, after Buffett that is.

Buffett completely escaped the dot bomb blow up and is on top of the world now. When countrywide financial was in the throes of collapse, it was the rumor that Warren Buffett was buying in that gave the stock a sharp pop from $15-$19. The rumor was false, and the rally failed. That same week in July 2007, Bear Stearns used the Buffett name for the same purpose, but to no avail in the long run.

So now comes the Treasury Secretary Hank Paulson using Buffett to con the markets into believing his company is safe. Don’t believe it. Goldman Sachs is not safe.  But the trick is he’s got to make Buffett buy. How? For that Paulson went personally to Buffett:

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.

Well, he didn’t make the sage an offer he couldn’t refuse, just one too good to pass up. It worked:

Goldman Sachs Group Inc. raised $5 billion in a stock offering, twice the amount the firm originally sought, after gaining an endorsement and a $5 billion cash infusion from billionaire investor Warren Buffett. The New York-based bank sold 40.65 million shares of common stock at $123 apiece, the firm said in a statement today. That’s a 1.6 percent discount to yesterday’s closing price of $125.05. The company, which underwrote its own offering, has an option to sell an additional 6.1 million shares.

Now we get to the place where you see “con job” written all over the walls:

“The endorsement of Warren Buffett should quickly end credit-market debate about the capitalization and liquidity position of Goldman Sachs,” Brad Hintz, an analyst at Sanford C. Bernstein & Co. who rates Goldman stock “`market perform, said in a note to clients today.

It probably will, but it shouldn’t, Brad. In the deal, Buffett gets 10% interest. That’s a credit default swap that says he doesn’t trust it and neither should you. There is another little twist, Brad.  Buffett is getting warrants:

Berkshire is also getting warrants to buy $5 billion of common stock for $115 a share at any time in the next five years. Based on yesterday’s closing price, Buffett reaped an instant paper profit of $437 million on the warrants.

That’s the too-good-to-pass-up part I was talking about earlier.

Don’t be impressed just because such diabolic betrayal is rarely conceived, let alone achieved. For a company which prefers to pay record bonuses to its top managers, this is nothing more than an unsightly Goldman Sachs capital-raising event. This is a company accustomed to having its profits and bonuses, having its cake and eating it too. And CEO Lloyd Blankfein didn’t even have to stop stuffing his face to tell everyone how good it tastes:

Berkshire’s commitment “is a strong validation of our client franchise and future prospects,” Blankfein said in the statement yesterday. “The investment will further bolster our strong capitalization and liquidity position.”

No it doesn’t, because it’s not a commitmentit’s a hedge.

The stake is large, but it’s a bit of a hedge, giving Mr. Buffett protection for his investment with little risk, unless the warrants are exercised. Additionally, it remains to be seen whether Mr. Buffett’s investment imbues investors with the confidence that markets will get back on track. After all, the housing crisis has not abated, and credit conditions still remain problematic, greater than the investing prowess of any one man, no matter how legendary.

It’s more like this: this emperor is naked, but if the masses in the stock market see through the wardrobe, Buffet will get out without a scratch, taking care of the investors who have put their trust and money in his hands. Contrast this with Paulson, who screwed those he took an oath to protect.

A lot of people believe Warren Buffett to be a honorable trustworthy man. I believe that as well, and I believe that is why he deliberately slipped up on the the Maria Bartiromo interview.


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