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Buffett Vs Paulson

I was listening to Joseph Stiglitz on NPR this morning [link to no longer works], and he had a very interesting comparison. (Quoting from an op-ed in the Guardian):

For all the show of toughness, the details suggest the US taxpayer got a raw deal. There is no comparison with the terms that Warren Buffett secured when he provided capital to Goldman Sachs. Buffett got a warrant – the right to buy in the future at a price that was even below the depressed price at the time. Paulson got for the US a warrant to buy in the future – at whatever the prevailing price at the time. The whole point of the warrant is so we participate in some of the upside, as the economy recovers from the crisis, and as the financial system starts to work.

The Paulson plan responded to Congress’s demand to have something like a warrant, but as a matter of form, not substance. Buffett got warrants equal to 100% of the value of what he put in. America’s taxpayers got just 15%. Moreover, as George Soros has pointed out, in a few years time, when the economy is recovered, the banks shouldn’t need to turn to the government for capital. The government should have issued convertible shares that gave the right to the government to automatically share in the gain in share price.

He also mentioned (as I recall) that Buffett got an end to dividend payments during the crisis and a higher deferred payment than Paulson imposed.

Interesting listening.

6 comments on "Buffett Vs Paulson"

  • beri says:

    Maybe Paulson didn’t know the difference. After all, the company he headed is now out of business.

  • Gunnar says:

    Not too surprising, only an economist would be surprised that Buffett got a better deal. He always does. Then again most economists believe in Efficient Market Theory and the probably the tooth fairy as well. As Buffett says, if markets were efficient I would be a bum on the street with a tin cup.
    Btw, speaking of getting a good deal, yesterday Buffett recommended(*) for us to buy stocks – nao! Paulson can’t exactly do that, but the rest of us can. Game on.

  • Mike says:

    Well, which money is also more attractive to a firm, dollar for dollar: US government or Buffett money? If I were a CEO, I’d go with Buffett money.
    There’s smart and dumb money in private equity and venture capital; why is this surprising?

  • Adam says:

    Gunnar, Mike,
    Paulson gave the companies no choice about accepting his cash. See for example, “As they heard more of the details, some of the bankers began to realize how attractive the program was for them.” or
    Now, maybe the terms were that good so that the banks would just shut up and get re-capitalized, but I think my representative should have started from the Buffett term sheet, or something closer to it.

  • Chris says:

    “Your representative”. Assuming facts not in evidence, your honor!

  • Gunnar says:

    “but I think my representative should have started from the Buffett term sheet, or something closer to it.”
    Well there are a lot of people on Wall St that do this stuff for a living and Buffett has been sitting out in Omaha and getting a better deal than all the New York people for many decades, so I don’t think there is any shame in a bureaucrat not being able to get as good a deal.
    The real question in my mind is why after so many decades of Buffett outperforming Wall St, why dont they learn?
    Great quote in Barron’s this w/e from Jeremy Grantham:
    Q. Do you think we will learn anything from all of this turmoil?
    JG. We will learn an enormous amount in a very short time, quite a bit in the medium term and absolutely nothing in the long term. That would be the historical precedent.

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