Warren vs. Sam

Not a court case of any proportion, but a play out of the approaches being used to address the financial problems of the major banks in the USA. Mr. Warren Buffett got into the "bailout" game as he found $5 billion and put it into Goldman Sachs (GS). Goldman has done well to escape much of the credit crisis and has proven to be one of the winners. Their shares have been beat down with the rest of the market to no surprise, but they've got relative strength among their peers.

Charley Blaine of MSN Money wrote a piece that summarizes what Mr. Buffett is getting for his money. Sure, Mr. Buffett is getting great terms -- 10% preferred stock dividend is very nice -- not to mention an in-the-money (ITM) option on buying GS common shares at $115. This could be nice to dip into when the GS shares go back toward the $200/share level. Ringing the register at $85/share would be nice.

So, this is what private (wise) investors do -- they bring the cash to the table with the strongest banking entity and get great terms. And GS agreed...? So it must have been a good deal for them as well in several fashions -- or at least a risk management tool that they believed would be good for the long-term. It's not totally impossible to speculate that GS management also has ITM options that could benefit from the goodwill Mr. Buffett brings to the table. Also, with this confidence, how many institutions, investors, and hedge funds will feel comfort in buying some GS common shares? Certainly so. That won't hurt the GS common stock price.

Now Sam... our Uncle Sam needs to make similar decisions. Providing some funds to shore up the balance sheets of banks might be wise and help restore some confidence. Preserving jobs for middle America also has a lot of value, and in election years, politicans like to help. President Bush can't win or lose anything so he has to look out for the country. Senators vying for the Presidency need to consider big questions as well: What's in it for America?

Only time will tell.