Buffett Bought Goldman Stake As "Call" On Bailout; Now Advising Congress

Am I the only one who finds this just a tad bit odious?

Readers might recall that on Sept. 23rd, the Sage of Omaha single-handedly rallied the market by plunking $5 billion down on swooning Goldman Sachs, at rather stiff terms. Nevertheless, the usual predominating breezy analysis proclaimed this to be a "show of confidence" in financials, more than the subprime-mortgage-like pound of flesh it was. Indeed, this was the upbeat management-speak of the day:

Calling the move by Buffett "a strong validation of our client franchise and future prospects," Blankfein added that the investment "will further bolster our strong capitalization and liquidity position." For his part, Buffett called Goldman an "exceptional institution." He added, "It has an unrivaled global franchise, a proven and deep management team, and the intellectual and financial capital to continue its track record of outperformance."

But shortly thereafter, Buffett made some comments that seem to somewhat undermine such accolades. From Fox:

"If Congress doesn’t help us on this, then heaven help us," Buffett said. He added that Americans were "looking over a precipice" in terms of the economic condition of the country over the next few years.

Buffett said that he may regret having bought the stake in Goldman if the rescue package doesn’t pass.

“If congress doesn’t do anything… I may wish I hadn’t gone in….I think anybody buying anything this week will wish they hadn’t if Congress doesn’t act,” Buffett said.

And on CNBC:

"I am to some effect betting on the fact that the government will do the rational thing and act properly," Buffett, one of the world's richest men and preeminent stock-pickers, told CNBC.

To his credit, Warren did say that he didn't think Goldman would fail without his money. That, however, may simply be because AIG (a major derivatives counterparty of Goldman) got some of the Treasury'smy and your money already.

Now the sagemeister is apparently putting his mouth where his money is, to make sure that the bet works out. Bloomberg reports (as an aside):

At one point during the negotiations billionaire Warren Buffett spoke by telephone to a lawmaker involved in the talks to offer ``his best thinking about market reaction to various things,'' Conrad said. ``People are trying to reach out to the best minds that they know.''

Gosh. Wonder if he's telling lawmakers that Wall Street will be honkey-dory if they don't pass a bailout reminiscent of what Paulson wants, ASAP.

Given his actions and candid comments, that is not something I'd bet on.

So, who exactly are we legislating for, here? I find this process -- how should I say this -- far from "impartial".

Note: a more extensive transcription of the CNBC interview is available here. Buffett keeps talking about the Treasury buying "at market prices", which of course is not at all what the proposal is, nor what the public Treasury/Fed-speak is saying.

Addendum: I remember seeing somewhere that Buffett had remarked that he did essentially no diligence on this deal -- driving the above points home -- but I cannot find a reference on that now. If you see one send it our way.

Update: an intrepid reader found the citation and quote --

On Tuesday, however, Goldman put the ball squarely in Mr. Buffett's court. Mr. Buffett is famous for making quick investment decisions based on his gut. For the Goldman deal, he says, "I didn't see a book. I just made a judgment." The quality of Goldman's management team and its franchise, he says, sealed the deal for him.

Quality of management -- and likelihood of bailout he'll help engineer. Maybe that's just our cynicism. But at least you have to admit that the above revelation means Buffett doesn't really know squat about what's inside Goldman's books.

Update (2): Now I feel stupid. Obviously the right way to interpret Buffett's quote above is the quality of Goldman management that is now working at the US Treasury. Now it all makes sense.

This post by Aaron Krowne, IEHI, Inc.