If you look back at the GE and Goldman deals that Buffett was able to cut back in the Fall of 2008, you’ll see some very shrewd business decisions. You’ll also see a well-connected man who knows how to leverage not only his sterling reputation, but also his connections with the Fed and the Treasury Dept. Buffett’s injections are seen as a vote of confidence by an adoring public who then blindly follow his lead. The frustrating part of the story is that the sheep in question never really understand that the whole gig is focused upon using the Buffett seal of approval to lure additional capital from a very predictable (and therefore, playable) public.
After raising $3 billion from Buffett in 2008, GE was able to raise another $12 billion from the public with much more friendly terms. The $5 billion Goldman injection was even sweeter, with US taxpayers supporting Buffett’s stake with an additional $10 billion in capital injections (shockingly, with horrible terms), guarantees on $30 billion in debt and another $12.9 billion in indirect Goldman payments via the AIG bailout.
The Bank of America deal announced today is so predictable; with headlines pulled directly out of 2008:
Wall Street Journal-Warren Buffett to Bank of America’s Rescue
Business Week-Stocks Rise As Buffett Buys Bank of America
Business Insider-Warren Buffett Saves Bank of America
Hmmmm, what will happen next? Perhaps Bank of America will leverage the Buffett seal of approval via a secondary offering of Bank of America stock and everyone will ride off into the sunset.
I take no issue with Buffett’s aggressive style, but I do have a problem with the free pass he gets with respect to his reputation. Is he a winner? Yes. But I think he deserves a closer look. I mean there’s more to winning than the actual wins. Both Joe Paterno and Jim Tressel have been able to tally up the wins in college football. But upon closer examination, only one of them truly stands out as a winner.
TD
Z Koolaid 