Oracle of Omaha Sees Poetic Justice + Monoline Bailout Offer
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Buffett sees financial woes as 'poetic justice' for some bankers
Problems in the U.S. financial sector are "poetic justice" for bankers who designed and sold complex investments that have since gone sour, the billionaire investor Warren Buffett said on Wednesday.
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The head of the Berkshire Hathaway group of companies also played down worries about a credit crunch by saying that recent interest rate cuts mean low-cost funds are readily available.
But he warned that the U.S. dollar will continue to slide unless the country can rein in its yawning trade deficit - the "biggest factor" behind the decline. Still, he said, the U.S. economy will "do very well over time."
Buffett, one of the world's wealthiest people, appeared to see irony in the fact that many of the banks who marketed complex investments, which have now crashed, are bearing much of the fallout.
"It's sort of a little poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end," he said.......
......Buffett said on Wednesday in Toronto that the turmoil that has rocked the U.S. economy in recent months has imbued the markets with a healthy degree of caution, while the rate-cutting response from central bankers has ensured that cheap money remains available for borrowing.
"I wouldn't quite call it a credit crunch. Funds are available," Buffett said during a question and answer session at a business event. "Money is available, and it's really quite cheap because of the lowering of rates that has taken place."
He added: "What has happened is a repricing of risk and an unavailability of what I might call 'dumb money,' of which there was plenty around a year ago.".......
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Buffett sees financial woes as 'poetic justice' for some bankers
Problems in the U.S. financial sector are "poetic justice" for bankers who designed and sold complex investments that have since gone sour, the billionaire investor Warren Buffett said on Wednesday.
.
The head of the Berkshire Hathaway group of companies also played down worries about a credit crunch by saying that recent interest rate cuts mean low-cost funds are readily available.
But he warned that the U.S. dollar will continue to slide unless the country can rein in its yawning trade deficit - the "biggest factor" behind the decline. Still, he said, the U.S. economy will "do very well over time."
Buffett, one of the world's wealthiest people, appeared to see irony in the fact that many of the banks who marketed complex investments, which have now crashed, are bearing much of the fallout.
"It's sort of a little poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end," he said.......
......Buffett said on Wednesday in Toronto that the turmoil that has rocked the U.S. economy in recent months has imbued the markets with a healthy degree of caution, while the rate-cutting response from central bankers has ensured that cheap money remains available for borrowing.
"I wouldn't quite call it a credit crunch. Funds are available," Buffett said during a question and answer session at a business event. "Money is available, and it's really quite cheap because of the lowering of rates that has taken place."
He added: "What has happened is a repricing of risk and an unavailability of what I might call 'dumb money,' of which there was plenty around a year ago.".......
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Comments
That's 1+1=3 dumb.
Mr. Buffet was indeed a news headliner today. Some are even calling today's stock market action the "Buffet Bounce".
US STOCKS-Dow, S&P end higher on Buffet bond insurer offer
NEW YORK, Feb 12 (Reuters) - The Dow Jones industrials and S&P 500 rose on Tuesday after Warren Buffett offered to reinsure $800 billion in municipal debt risk from the top three bond insurers, soothing worries about further fallout from the credit crisis.
Buffett's move allayed fears that banks would be forced to write down the value of assets insured by firms such as MBIA and Ambac. That sent the S&P financials index up 2.3 percent.
"When you look at what Buffett is going to do, it's not going to be buying the company, but reinsuring what's out there. So it doesn't necessarily save Ambac and MBIA, but it does prevent the downgrade aspect of the bonds," said Owen Fitzpatrick, head of U.S. Equity Group, Deutsche Bank Private Wealth Management, in New York.....
Wall Street Rallies on Buffett News
NEW YORK (AP) -- Wall Street finished mostly higher Tuesday after billionaire investor Warren Buffett offered to help out troubled bond insurers, easing some of the market's concerns about further deterioration in the credit markets. The Dow Jones industrials rose more than 130 points.
In an interview on CNBC, Buffett said his Berkshire Hathaway Inc. holding company has offered a second level of insurance on up to $800 billion in municipal bonds. The reinsurance offer is for bond insurers Ambac Financial Group Inc., MBIA Inc. and Financial Guaranty Insurance Co., known as FGIC.
Word of the offer gave some investors relief although Buffett said a deal would only back municipal bonds, and not the risky and complicated financial instruments that many see as more likely to have problems. Still, further assurances on the soundness of municipal bonds could help shore up Wall Street's confidence and reinforce the differences in quality among various levels of debt.....
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One has to respect Buffet for all that he's done, but I wonder if he's grabbed the tiger by the tail here, and doesn't realize it yet. He's clearly counting on the munis have a low default rate, and on being able to cover what defaults occur with increased premiums, a classic insurance play.
But in some ways I think his age and perhaps outdated sense of morality is showing. In the old days the towns and cities would always pay up and meet their obligations. In this new world of crashing property values and tax revenues, they may not be able to, and indeed, may decide that bankruptcy and a fresh start, with a fresh sense of what taxes they can raise and the services they can realistically afford, may be the better way out. If they do, he screwed.
I didn't get the impression he was doing any such thing. Isn't the plan, that he'll take $3 billion off their books for the low low price of $1 billion?
It sounds to me like he expects the defaults to be less than 1/3rd of the total value then...I would hardly call that a low rate. Of course, if there is a lower rate of defaults then he really makes a killing.
Buffet is pretty shrewd about this, IMO.
If I am understanding the situation correctly, I do not see why bond-insurers would go for this deal, and apparently two of the three insurers don't believe it a good deal either (see link below). They would be giving away the best part of their business (and their best hope at surviving) and still be left with covering the risky CDO junk.
2nd Bond Insurer Rejects Buffett's Offer
OMAHA, Neb. (AP) — Two of the three troubled bond insurers billionaire investor Warren Buffett offered to help have rejected extra guarantees on municipal bonds.
Ambac Financial Group Inc. said in a statement Tuesday that the reinsurance that Omaha-based Berkshire Hathaway Inc. is offering wouldn't be in the best interests of the bond insurer or all of its policyholders.
Buffett said Tuesday morning that one of the three bond insurers Berkshire offered reinsurance to had already said no, but he didn't say which one declined......
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Apparently the only money to be made on this type of insurance is up front - there is no ongoing revenue stream - so Buffet is trying to get in line for the *next* issuance - but in the process of doing so he rips out the only future profitable revenue stream these guys have.
Some key tidbits (all emphasis mine).
This is a borderline situation where we might normally expect a "Too Big To Fail" mindset to set in. But what Buffet has done is spin the tables. He or someone else will do the work of bailing out munis, the TBTF part, and then the monolines will probably fail anyways.
I wonder if this puts some other players on notice. This is a way to slice the parts that can't fail from the parts that can, and you might see the idea spreading. Maybe CFC or WAMU are too big to fail, but if you split them up correctly you might be able to get the parts that can't fail away from the parts that can. Just a though.
Looks like all of these guys will end up in the same place. They'll scurry back to old muni bond business, and leave a stinking rotting heap of cr@p in the CDO business.
No surprise here!
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Bond insurer offer off the table, Buffett says
SAN FRANCISCO (MarketWatch) -- Warren Buffett has withdrawn his offer to reinsure $800 billion of municipal bonds guaranteed by MBIA Inc., Ambac Financial and FGIC, the billionaire chairman of Berkshire Hathaway said on Monday.....
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What kind of deal is it to basically offer to help out another business by taking away all their profits and customers (i.e. the only business the monolines have left is bond/muni insurance)? That's like going to a restauranteur and saying, "I would be happy to take those lunch customers off your hands, who are just crowding your premises, if you just send them over to my deli."
How does that help? No business would ever even consider such a deal, and if it got to a point where they had to (e.g. the food inspector was citing them for violations), then they'd may as well just close the doors altogether.