Buffet sees huge profit for US in $700B plan

[kstar]

**I originally posted this in PARF, but since several threads on the contemplated $700B plan have been posted here, and generally progressed without political vitriol, I figured this interview could be placed in front of the general PP population for discussion

I haven't yet watched the whole 54 minute interview of Buffet by Charlie Rose, but apparently Buffet sees the US potentially making $2T on the $700B plan, if passed and if the US buys the distressed assets at market.

http://www.charlierose.com/shows/200...warren-buffett

Best,

[Rich76_911s]

The big question is what the government pays for these assets. If they pay close to where they are being priced today then yes they could easily make money. IF on the other hand they over pay for the assets then the opportunity for gains deminishes significantly.

Buffett assumes that they will pay bargain prices. I'm not so sure that I trust the government to pay "bargain" prices with our money. It wouldn't bother me if Buffett was handed the responsibility of buying this stuff from the banks. Hell anybody that can get 10% interest with a 3 year call and warrants on a AAA rated company knows how to pick the pocket of these banks.

[widebody911]

Like I said before: it's a turd sandwich. If there was easy money to be made (as some proponents claim), the banks wouldn't be begging the government to take a bite.

[hardflex]

Doesn't that go against the whole "Private Corporations s are always better and more efficient than Govt." mentality?

[kstar]

This is not a response specifically directed at any of posts above, but there is a parallel thread in PARF if folks want to dive into the political aspects of Buffet's speech.

Let's keep this one apolitical.

[mattdavis11]

Edit: tis fair.

[Jim Richards]

Originally Posted by Rich76_911s

The big question is what the government pays for these assets. If they pay close to where they are being priced today then yes they could easily make money. IF on the other hand they over pay for the assets then the opportunity for gains deminishes significantly.

Another issue is that they might sell off (below market value) or give away assests as part of some economic stimulus bill that Congress approves at some future date. Lobbists (for the financial sector, perhaps) will surely be looking at creating these opportunies for federal largess when no one is paying attention. I'm hoping this bailout plan dies in the House. Let's take our medicine.

[competentone]

Originally Posted by widebody911

Like I said before: it's a turd sandwich. If there was easy money to be made (as some proponents claim), the banks wouldn't be begging the government to take a bite.

Precisely.

Buffett hasn't visited any of the abandoned sub-prime properties that are worthless.

There are unbelievable numbers of properties wrapped up in the investment banks' CDOs that would cost more to repair than they can be sold for when repaired. There are many properties that will cost more to demolish than the resulting vacant lot will be worth.

People are being delusional, completely ignoring the realities about many of the properties the government is considering buying, if they think that there is money to be made with these mortgage securities.

Even with those properties where there is money to be made, I can guarantee you that if government incompetence doesn't prevent the government from making money on them, corruption will assure that the money will be made by the "politically connected" private sector, not by the government for the benefit of the taxpayer.

[Rich76_911s]

Originally Posted by widebody911

Like I said before: it's a turd sandwich. If there was easy money to be made (as some proponents claim), the banks wouldn't be begging the government to take a bite.

The catch to that is that no one other than the goverment has the money to be able to buy these assets and hold them for that period of time. It may be easy money if you have 700 Billion.

Look at the deals that Buffett got on Goldman and General Electric. It is essentially a no brainer the deals he was given. He is getting paid better than 10% interest. He has 5 and 3 billion dollars respectively and the ability to hold those assets for a long term. That right there is some easy money. The banks would love to be getting in on those deals, but without the money they can't do it. The government MAY be in Buffetts shoes with respect to these assets.

[Porsche-O-Phile]

Even if the government made a zillion bajillion dollars off this, what's the likely outcome (pick one):

A) Taxpayers don't see dollar #1
B) Government uses the money to increase spending on big new government programs like Social Security bailouts, National Health Care plans, etc. ending right back in the same position in a few years.
C) Because of overspending, government is "forced" to raise taxes on the American people again.
D) These "investments" yield either losses or only marginal returns - not accounting for inflation, which outpaces them by about 15% a year.
E) All of the above



F) Manna falls from the heavens, angels blow trumpets and throw rose petals at Obama's feet and the taxpayers all get a million dollars and a free McMansion from the government. Life is wonderful and utopian.











I'll take "E".

[kstar]

** No politics guys!**

I think the best argument against the $700B government plan is the "government" part of the equation, as stated by "competentone" and Jeff above.

Wall off some kind of entity away from government and bank Buffet $700B and let him go to work. He might even do it as a public service, but probably not!

[Jim Richards]

Originally Posted by kstar

** no politics guys!**

+700,000,000,000

[Porsche-O-Phile]

Originally Posted by Jim Richards

+700,000,000,000

Sorry 'bout that, but it's kind of inescapable with this topic seeing as it IS being debated by government/Congress.

Is that +700,000,000,000 before or after taxes and inflation?

[Jim Richards]

before.

[kstar]

Originally Posted by Porsche-O-Phile

Sorry 'bout that, but it's kind of inescapable with this topic seeing as it IS being debated by government/Congress.

Is that +700,000,000,000 before or after taxes and inflation?

I think it's okay to say one is against government intervention and stay apolitical; "we" get in trouble if "we" get more specific about which side of the government . . . I think.

PARF has its own version of this thread, FWIW.

[the]

Buffet will make a few billion if the bailout plan goes through.

[jyl]

Prices: suppose typical subprime/AltA MBS is marked to 80-90 cents on typical banks' books, and quoted at 65 cents, but distressed sellers are getting only for 20-30 cents. I don't have best data but this is probably in the ballpark.

Values: hold-to-maturity value basically depends on how many mortgages go into foreclosure, and how much those house prices fall from original purchase price to foreclosure sale. I posted some scenarios in another thread. I came up with range of 40 cents ("depression" scenario) to 80 cents ("good" scenario). Your views may vary of course, some of you probably think 100% of these mortgages get foreclosed and the houses/land are worth zero $.

So, potential outcome range is wide. Govt can buy $700BN worth of mortgages and MBS for anywhere from 30 cents to 80 cents, can sell for anywhere from 40 cents to 80 cents. So gives me a likely range of ultimate return -50% to +160%. Your assessment may vary.

I personally am assuming that govt will buy $700BN of mortgages, hold them for 5 years while receiving about $50BN of net interest, then sell them for $350BN in 5 or so years. So ultimate net cost around $300BN, or about 2% of GDP.

(Interest - govt will be paying treasury bond interest on the $700BN - say 3% on all $700BN - and receiving subprime/AltA mortgage interest on the portion of the $700BN that is performing - say 7% on 60% of the $700BN. So govt will receive net interest, maybe $10BN/yr - more in early years, less in later years.