As I expected Warren Buffett has put John McCain east of the rock and west of the hard place, practically assuring the election of his favored candidate, Barack Obama.
Buffett did this by putting $5 billion into Goldman Sachs (at a usurious rate on behalf of his Berkshire Hathaway) and then stating that, if could get his hands on $700 billion he’d do the whole bail-out.
With ideological Republicans standing foursquare against any bailout, the Bush Administration is forced to craft a deal Democrats will accept. Despite the blathering coming from CNBC, the Democrats will get everything they want — because Paulson has no one else to deal with.
Thus Barack Obama will get a deal he can agree to. And McCain? If he votes aye he angers his own voters. If he votes no he angers Wall Street.
Checkmate.
Paulson is doing a horrible job of explaining this, but the deal is
simple.
The government invests money and takes time. It buys assets the
market can’t value yet, re-starts the market, then re-sells the assets,
probably at a profit. Add this to the profit it will certainly gain in
the AIG bailout (an 11% interest rate plus a 80% equity stake) and the
people are doing some good business.
The ideological wing of the Republican Party can’t accept this. Calling it all "socialism" and "un-American"
as Jim Bunning did (above) is to completely misread history. This is precisely the deal J.P.
Morgan did for himself in 1895, the same deal he did for his firm in
1907.
When you buy at a time no one else is buying you get yourself the
deal of a lifetime.
But as Buffett noted, even he can’t get his hands on the capital needed
to assure the market is re-started. Only the government, which can
currently sell 3-month paper at an interest rate of less than 1%, has
that capital-raising capacity. This is a tribute to the world that Morgan built, and to
the dispersal of modern capital into many hands around the globe.
The ideologues don’t understand this.
There is a ton of bleating about this from the Left as well. That
will be assuaged by the language Sen. Dodd and Rep. Frank negotiate, in
exchange for Democratic support of the final bill. Again, since the
Republicans aren’t at the table, Democrats will get what they want. George
Bush can jump up-and-down and quack all he wants to, it won’t change the outcome. He can’t bring his own troops to the table, so he has no place at it.
Thus Wall Street will see that one side of the political divide has its back and one side does not. When Steve Forbes and
Rupert Murdoch send their troops out to generate support for John
McCain next month they will be met by silence.
When the money power moves across the aisle, so does a governing majority. New
myths will be spun explaining this, later. But this is the decisive
moment. Hoover was annihilated because a substantial portion of the
Money Power moved to FDR in 1932. The Nixon Thesis will be killed by
the same force.
Assuming the assets are there and are sound. They may be buying a quadrillion’s worth of junk investments, considering the massive fraud that went into the bubble.
Assuming the assets are there and are sound. They may be buying a quadrillion’s worth of junk investments, considering the massive fraud that went into the bubble.