Follow the Oracle: Buffett's Goldman Deal a Roadmap for the Government

Buffett has a sure thing here with the government (tax payers) bailout. How can he lose?

Wall street goes to a gamble table, leveraged 30 to 40 times. ........................... Wall street received billions after billions of bonus, stock options, salary, and other compensation, when they win. ................................... When they lose the bet, the working stiffs, taxpayers bail them out and they still receive hundreds of millions severance package. .................................. This is the biggest wealth transfer from the poor, the working stiffs to high and mighty, bullsh-t artists, lawyers, accountants, salesperson, politician, crooks..... ............... These people are the terrorists to the world economy, should be in jail. ...................... No bailout.... No severance package............. These people are laughing all the way to bank, move money to Swiss or Lechinstan to avoid paying income taxes in the amount of 100 billion dollars(according to IRS)????...................... These people will be back as CEO of another bullsh-t company in a few years. .......................... No wonder, there are financial crisis every few years and bigger, faster than ever..............

In the magical land of Oz, Dorothy decided to try real estate flips, and followed the yellow brick road to Oz for financing. Dorothy explained, “I don’t have a down payment, I live from paycheck to paycheck, and spent everything on ruby slippers and the Witches broom.” And the Mortgage Maker replied, “that’s no problem, the Money People have friends in high places; they don’t want rules that prevents turning the American home into a speculative commodity.” “Those folks,” he continued, “are also opposed to 401k fee disclosure, derivatives risk disclosure and so on, all kinds of things, and are getting profits and special perks to keep the rules at bay you couldn’t imagine. In fact, the Munchkin leaders are all multi-millionaires, and invested in this too, so you can have anything you want. It’s just like magic!” Dorothy replied, “well, that’s why I came to Oz! Can you finance my closing costs and down payment too?” The Mortgage Maker continued, “Of course! And we’ll do the cheaper variable rate loan.” Dorothy exclaimed, “but who is taking the risk for this?” “Don’t be concerned, the Money People above are clamoring for more of these profitable Tranches, so in with the mortgage and house you go!” exclaimed the Mortgage Maker. Dorothy said: “well, Ok, this really is the magical land of Oz after all!” At that moment, the brainless Scarecrow showed up, and also asked for another mortgage. “Of course you can,” replied the Mortgage Maker. The Scarecrow continued, “I just bought a Vette, an SUV, I’m maxed out on my mortgage, home equity loan, the bridge loan for the other house, and the loan for the down payment, the boat, the furniture, the hummer, the credit cards and the pool.” Not a problem replied the Mortgage Maker, THIS IS OZ!!! If you need something else, an appraiser will price your house so you can use it like an ATM!” And there was so much money to be made, houses started dropping all over Oz, over 1/3 of them foreign investors who wanted their piece of the investment pie, and soon, all of the Munchkins in Oz were swapping up and flipping houses too. The Lion and the Tin Man both looked on with disgust and said “this can’t continue indefinitely, someone will pay for this, it always works like that for me” and for several years there were obvious signs of impending trouble. “Housing bubble” became a household word for several years, but the Wizard of Oz and Munchkins that run the palace would hear none of that, because they represent minimalist government, and believe that greasing the skids of the economy with irresponsible commerce and cash from debt spending outweighs anything else. Even if it means destroying the incentive and finances of honest people that work, save money and pay their bills, even if it means allowing companies to make it illegal to hire Americans that costs millions of jobs, even if it means poisoned food, even if it means a disaster. And the Wicked Witch named “Reality” kept tormenting all of the Munchkins and kicking them out of their houses, and soon Dorothy and all of her Munchkin friends returned to the palace to complain about Reality and losing homes they did not pay for and couldn’t afford. The Wizard of Oz took over $160 billion dollars in free money and threw it out the palace windows to all of the Munchkins, with no restrictions, like, if you are behind on your mortgage, you have to use it to make payments to Witch Reality. The Democrat Munchkins then tried to throw another $50 billion dollars out the palace windows, but couldn’t do it fast enough before the Treasury Munchkin and the FRS Munchkin took over and started handing out hundreds of billions of dollars to their wealthy friends who are only a mere phone call away. However, the Wicked Witch of the West “Reality,” continued, and kept taking houses away from all those who lived in the land of Oz, and the Munchkins all started walking away from the houses they didn’t save, sacrifice or risk a noteworthy down payment to get into, despite the Munchkin leader’s multiple bailouts. The Wizard had to come up with a way to save this mess, so he waved his minimalist government magic wand, and said “I can do anything, there are no rules I can’t break or make,” and transformed himself into the maximist FDR New Magic Deal. So, knowing that foreign countries would bail out the USA as long as Americans kept buying their foreign goods, by buying American businesses and currency to keep America’s inflation down, the Wizard devised a grand scheme to throw 2 trillion dollars of deficit spending at the problem. And with that, he decided to eliminate all debt for all of his wealthy friends, the investment firms, the banks, the foreigners, by saddling all of the Tin Men in Oz (because the Lion has special tax exemptions from the 66,000 page tax code book) with 2 trillion dollars in additional debt. Because there were so many munchkins with little money and bad cedit records, few of them could qualify for a mortgage and buy a house, but the New Magic Deal intends to encourage banks to lend money carelessly again by erasing their debt. The Tin Men pleaded to at least create a couple of extremely simple, basic mortgage rules so they could be protected from idiots and predators and avoid another disaster, but the Treasury Munchkin Paulson refused new rules because it limits amount of money the Money People can make, while the Congressional and Senatorial Munchkins went berserk and proposed using tax dollars to erase ALL debt, including foreign debt, credit card debt, auto loans, mortgages, virtually everything, and called it tax payer protection (which it is not, it’s called welfare.) The emergency required that 2 trillion dollars be thrown out the palace windows, right now, with minimal problem definition, planning or debate. Last I heard, the houses are still unsold, the 2 trillion dollars are now in the bankers and Wall Street’s hands. Ignorance, greed and a lack of leadership has permanently cancelled the national healthcare system that would have cost much less than the 2 trillion dollars. (do you think it’s a joke when we say we’re permanently enslaved, and have lowered our standard of living?) Foreigners weren’t able to buy enough currency to stop the US Dollar devaluation. Dorothy, the Scarecrow and the Munchkins all got their houses back (that they still haven’t paid for) at half the cost that the Tin Men bought and paid for their smaller homes. The Tin Men are having heart problems, are doing without, and losing their jobs to corporate sponsored outsourcing and offshoring, and Reality is tormenting the Tin Men. The Tin Men’s children, and their children’s children, will spend the rest of their lives paying everyone else’s debt including the foreign investors who dropped into Oz only to make money.

Buffett always amazes me. If you want to get rich, just buy whatever he is buying ! http://valuestockinvestors.blogspot.com

Rather than buying up the bad debt of financial firms, the government should follow Buffet's model: Give capital infusions in exchange for part ownership of the companies in question. Paul Krugman has recommended this method and it was successful in Sweden in the early 1990's.

Where's the responsibility of these clowns?

He did not have much success w/ Saloman and He will not here either although he stole it and is now drooling over the opportunity to pig out at the Fed discount window "trough"---another pig that sees an opportunity on the backs of taxpayers----what a joke! He should be arrested for theft!

nothing new here...rich get richer, like always. The poor and middle class with minimal to no assets loses to inflation.

Why wasn't Lawrence White saying "these are fragile times" 6-12 months ago and stepping in to do something about it? If he didn't see this coming, why is his opinion valuable now?

Mark B - Wonderful story. If only it were just a story...

I really like Warren Buffet, and I look to him often to provide the 'gut feel' for what's wrong/right, what's a good/bad deal. And while I agree with most that he is indeed the 'greatest investor of all time', I do think he has likely made a mistake by investing in Goldman at this juncture. Not that all will be lost, no, but he's likely taken this latest 'leap of faith' way too early in the light of an almost guaranteed contraction of our economy. My question for Warren is this, "why didn't you invest in Goldman back in 2006, when it was this 'cheap' back then?". Suredly it appeared to be significantly more sound then than it does now... In any event, he's done it, the markets have stabilized a bit..., and time will tell with regard to the so-called bailout. I think we've go a long way to go, both DOWN and OUT, perhaps another 20-40% lower on the broad indexes over the next two years... But, I have to say, the Oracle of Omaha has walked on water so long that anytime he makes a big bet others tend to support him and follow. I, for one, am not one of them at this point, but perhaps he can provide some solace to the masses to help us all avoid a broad-based panic, and for that I am appreciative. I will instead watch from the sidelines as 'hopeful' investors try to save our market by holding on by their finger nails as the tires deflate further. Only AFTER the tire has a resounding 'pop' will I be a buyer of stocks once again. This would potentially be after a down 1500-2000 point day on the Dow, and/or after a long and pronounced downward spiral to a Dow of around 8500. Hate to provide such an ominous outlook, but if you want to keep things simple just do the math or draw a line after taking a look at the Dow back to 1920. The only way we'll reach a bottom is when P/Es are down around 9-11 times earnings, and if EPSs contract by 25-50% that's a long way down from here.... And for those of you whom like graphics, go to MSN Money and look at the long-term historical map for the Dow (go to 'Max' time period), then draw a 'reasonable' and 'rational' trend line for yourself through to today. You will see that a Dow of 5000-8000 is reasonable. This is not fancy footwork by Goldman, Morgan, Merrill, Lehman, or Bear Stearns, but then again, three of these entities no longer exist, do they......

Warren Buffet is not always right is he? I think he is just taking advantage of opportunity. The 5 billion will be structured as preferred shares (may be even debt), so if GS goes down these will be paid before common. One cannot extrapolate what Warren Buffet does with one company to the market. GS is not representative of the market.

Don't bail out in a panic. The market is working.

Are things really turning around or does he know that Paulson will help his ex-associates at Goldman Sachs.

The original Oz from 1939 was a wonderful story; a classic, there's a parallel between what I see unfolding each day and Oz, couldn't resist a little stab at humor and cooked it up one evening recently. No matter what they do to us, and it really is a tragedy of failed leadership and broken trust that is and has been costing us in more ways than one, there are some things they can never take...

Letter to my congressman: I have a business in Brenham. We are a sort of financial institution in that we build cabinets and extend credit to our customers. In the course of business, I have had many customers that did not pay their bill. Some have filed for bankrupcy and some have skipped. I really need for the Treasury to buy these bad recievables from me in order to strengthen my balance sheet. If they would buy them at face value, it would really be nice, but we could negotiate. If you could see that I was included in the upcoming bail out, I would really appreciate it. I would readily agree to any limits that you might wish to place on executive compensation. Thanks,

We dont know if the market is now on the bottom, Mr Buffet is reasonable man,he always done his business when the market is down and none much like to put money in because they are in doubt...Mr Buffet know what he is dealing about and he is good in managemnt of someone who trust him.,. How many jobs he save from $ 5 Billion dollar.the previous is about $4 Billion he buy the unprofitable electricity company to turn it round.How many job did he save then. Not few but by the thousand job he saves. Do you save jobs of many common people like me and you Mr Buffet has..

Warren Buffett just pumped a bunch of money into Goldman Sachs. Of course he's gonna support the bailout. Am I the only one who see's that? I don't know anything about stock markets, but I agree with "Whit Chambers"...the market is working, let it do what it does...without the government stepping in. You pay your money and you take your chances...quit asking for a government handout.

If Warren is buying financials then Paulson and Bernanke are definitely lying to us!! .. there is no panic situation and we should just wait until February for any decision ... or maybe no decision needed at all!! No Bailout for Fat Cats! .... let the Buffetts of the world to save the Fat Cats....

What about the billions and billions the oil companies are making. Why can't they foot some of the bill. Diversify into the banking community. Its time coporate America help each other and not just the taxpayer bailingt out everybody.