Warren Buffett: He would love to buy those bundled mortgages, but only at "at market prices..."

[mshan]

CNBC interview of Warren Buffett

Even though he says Congress needs to do something, notice how he keeps saying hedging his statements with the often repeated caveat "at market prices..."

 

[IHateMyJob2004]

And your point? WEB is in fact supporting the bail out? That is all he is saying. he is a value investor. One of the best ever. Why would he say anything other than "at market prices"?

 

[Fern]

"Market prices"?

WTH is that?

There is no market for that stuff (MBS - mortgage backed securities), that's the d@mn problem right now.

Fern

 

[mshan]

Closer to 30 cents on dollar than 65 cents on dollar, as PIMCO's Bill Gross says they are supposedly worth over time.. (i. e. if you really are trying to make money, or at least break even, over time, you pay much closer to 30 cents than 65 cents. And you totally stay away from the toxic waste investment banks have tucked away in SIVs in the Cayman Islands).

And it really depends on specific cr*p you're buying? Florida or California vintage 2006? The stuff investment banks have tucked away in the Cayman Islands? Or good stuff (i.e. houses really worth 65% of face value and not too heavy a mix of really poor risk mortgages).

 

[sactoking]

And that's why the bailout is bogus. The gov't will either buy 'at market', which there is none, or 'above market' which means we get hosed.

 

[smack Down]

Originally posted by: Fern
"Market prices"?

WTH is that?

There is no market for that stuff (MBS - mortgage backed securities), that's the d@mn problem right now.

Fern

There is also no market for dirt at a few 100 dollars per pound but that doesn't mean there is no market. The MBS are not worth the paper they are written on. Goldman had no problem unloading a shit load of that junk at 5 cents on the dollar and I'm sure the rest of the banks could do the same for the same price.

 

[Fern]

Originally posted by: smack Down

Originally posted by: Fern
"Market prices"?

WTH is that?

There is no market for that stuff (MBS - mortgage backed securities), that's the d@mn problem right now.

Fern

There is also no market for dirt at a few 100 dollars per pound but that doesn't mean there is no market. The MBS are not worth the paper they are written on. Goldman had no problem unloading a shit load of that junk at 5 cents on the dollar and I'm sure the rest of the banks could do the same for the same price.

Goldman Sachs made their money by selling the MBS short. I.e., they saw the problem coming.

Fern

 

[IHateMyJob2004]

People are such twisters of words:

Quick: YOU KNOW, WE'VE HAD PEOPLE CALL IN BRINGING UP THIS QUESTION, IF THIS IS SUCH A GREAT DEAL FOR THE AMERICAN TAXPAYER, WHY ISN'T WARREN BUFFETT INVOLVED IN THAT AS WELL. WHAT DO YOU SAY TO THAT?

Buffett: I DON'T HAVE 700 BILLION. WE WOULD BUY AT MARKET PRICES, WE WOULD BUY THE MORTGAGE DEBT IF WE HAD THE BORROWING CAPACITY OF THE GOVERNMENT. IF WE COULD DO THE DEAL THAT IS AVAILABLE TO THE UNITED STATES GOVERNMENT AND HAVE STAYING POWER, WE WOULD MAKE SIGNIFICANT MONEY. IF THEY BUY THE ASSETS AT MARKET PRICE, I WOULD LOVE TO HAVE 1% OF THE PROFIT OR LOSS THAT RESULTS FROM BUYING THESE ASSETS FROM TROUBLED FINANCIAL INSTITUTIONS.THEY'RE COMPETITION IN BUYING THESE IS A BUNCH OF HEDGE FUNDS AND THE GOVERNMENT WITH ITS BORROWING COSTS, IF THEY BUY THEM AT MARKET, THEY WILL REALIZE A SIGNIFICANT PROFIT OVER TIME. I WOULD LOVE TO HAVE ONE PERCENT OF THE ACTION. I CAN'T AFFORD ANY MORE THAN THAT. THE KEY IS BUYING AT MARKET PRICES.

Sorry, the article was all in caps lock. All WEB is saying is that it if the gov't pays fair market value, the gov't (aka the taxpayer) is going to make ALOT of money. Even if they pay to much, that doesn't mean it was a mistake. What WEB is basically saying (I know alot about the man) is that he thinks the gov't will make 15% annually long term if fair value is paid for the mortgage debt. Even if the gov't pays 50% more than they should, they will still do OK. For WEB to say he would do it if he had $700Billion to spend is to say that he expects atleast a 15% annualized return. That is how he invests. That is why he is one of the greatest investors ever.

Knowing this the interview continues:

Quick: ARE YOU SAYING THAT IF YOU COULD GET 1% OF THIS DEAL, YOU WOULD PUT UP YOUR MONEY?

Buffett: YES. IF THE U.S. TREASURY OFFERED ME THE CHANCE TO HAVE A 1% PARTICPATION IN THE PROFIT OR LOSS IN THE 700 BILLION THEY'LL SPEND AND IF THEY BUY THE ASSETS AT MARKET PRICES, I'D FEEL I HAVE A SWEET DEAL. I WOULD TAKE 1% OF THE DEAL.

That is WEB saying he would want in because he could make 15%+ annually if fair value is paid for the mortgage debt.

 

[mshan]

Quick: YOU KNOW, WE'VE HAD PEOPLE CALL IN BRINGING UP THIS QUESTION, IF THIS IS SUCH A GREAT DEAL FOR THE AMERICAN TAXPAYER, WHY ISN'T WARREN BUFFETT INVOLVED IN THAT AS WELL. WHAT DO YOU SAY TO THAT?

Buffett: I DON'T HAVE 700 BILLION. WE WOULD BUY AT MARKET PRICES, WE WOULD BUY THE MORTGAGE DEBT IF WE HAD THE BORROWING CAPACITY OF THE GOVERNMENT. IF WE COULD DO THE DEAL THAT IS AVAILABLE TO THE UNITED STATES GOVERNMENT AND HAVE STAYING POWER, WE WOULD MAKE SIGNIFICANT MONEY. IF THEY BUY THE ASSETS AT MARKET PRICE, I WOULD LOVE TO HAVE 1% OF THE PROFIT OR LOSS THAT RESULTS FROM BUYING THESE ASSETS FROM TROUBLED FINANCIAL INSTITUTIONS.THEY'RE COMPETITION IN BUYING THESE IS A BUNCH OF HEDGE FUNDS AND THE GOVERNMENT WITH ITS BORROWING COSTS, IF THEY BUY THEM AT MARKET, THEY WILL REALIZE A SIGNIFICANT PROFIT OVER TIME. I WOULD LOVE TO HAVE ONE PERCENT OF THE ACTION. I CAN'T AFFORD ANY MORE THAN THAT. THE KEY IS BUYING AT MARKET PRICES.

He doesn't say fair market prices, he says "at market prices...", over and over again.

It's a very careful and specific caveat. And again, it depends upon what specifically you are buying...

 

[smack Down]

Originally posted by: Fern

Originally posted by: smack Down

Originally posted by: Fern
"Market prices"?

WTH is that?

There is no market for that stuff (MBS - mortgage backed securities), that's the d@mn problem right now.

Fern

There is also no market for dirt at a few 100 dollars per pound but that doesn't mean there is no market. The MBS are not worth the paper they are written on. Goldman had no problem unloading a shit load of that junk at 5 cents on the dollar and I'm sure the rest of the banks could do the same for the same price.

Goldman Sachs made their money by selling the MBS short. I.e., they saw the problem coming.

Fern

You right it was Merrill Lynch that sold their's at 5 cents on the dollar.

 

[IHateMyJob2004]

Oh heck, here it is:

Quick: MR. BUFFETT, WE HAVE HEARD FROM PLENTY OF PEOPLE WHO HAVE WRITTEN US AND CALLED IT AND SAID THEY'RE AGAINST THIS RESCUE PLAN BECAUSE THEY THINK IT'S A BAILOUT FOR WALL STREET. YOU'VE COME OUT IN FAVOR, BUT HOW WOULD YOU EXPLAIN THIS TO THE AVERAGE AMERICAN WHO DOESN'T HAVE A LOT INVESTED IN THE STOCK MARKET. WHAT DO THEY HAVE AT STAKE?

Buffett: THERE IS NO QUESTION THIS IS A RESCUE PLAN, BUT IT'S A RESCUE PLAN FOR THE AMERICAN ECONOMY NOT WALL STREET. IF YOU LOOK ATT HE PEOPLE AT LEHMAN OR BEAR STEARNS OR AIG, THE SHAREHOLDERS HAVE GOTTEN KILLED AND A LOT OF THE PEOPLE ARE LOSING JOBS OR LOSING BONUSES AND ALL KIND OF THINGS. THIS IS DESIGNED TO HELP THE AMERICAN ECONOMY FROM GOING INTO THE ULTIMATE TAIL SPIN, BUT WHEN CREDIT IS FROZEN AND WHEN BANKS ARE UNWILLING TO LEND TO EACH OTHER AND 8% OF DEPOSITS IN AMERICAN BANKS HAVE BEEN MOVED -- THESE ARE -- THIS IS AN ECONOMIC PEARL HARBOR AND ONLY THE WHOLE WORLD WANTS TO DELEVERAGE.THE ONLY ENTITY IN THE WORLD THAT CAN LEVERAGE UP TO MATCH THAT FORCE IS THE U.S. TREASURY. THEY ARE NOT DOING THIS FOR WALLSTREET. THIS IS BEING DONE FOR THE AMERICAN ECONOMY.

 

[mshan]

Quick: YOU KNOW, WE'VE HAD PEOPLE CALL IN BRINGING UP THIS QUESTION, IF THIS IS SUCH A GREAT DEAL FOR THE AMERICAN TAXPAYER, WHY ISN'T WARREN BUFFETT INVOLVED IN THAT AS WELL. WHAT DO YOU SAY TO THAT?

Buffett: I DON'T HAVE 700 BILLION. WE WOULD BUY AT MARKET PRICES, WE WOULD BUY THE MORTGAGE DEBT IF WE HAD THE BORROWING CAPACITY OF THE GOVERNMENT. IF WE COULD DO THE DEAL THAT IS AVAILABLE TO THE UNITED STATES GOVERNMENT AND HAVE STAYING POWER, WE WOULD MAKE SIGNIFICANT MONEY. IF THEY BUY THE ASSETS AT MARKET PRICE, I WOULD LOVE TO HAVE 1% OF THE PROFIT OR LOSS THAT RESULTS FROM BUYING THESE ASSETS FROM TROUBLED FINANCIAL INSTITUTIONS.THEY'RE COMPETITION IN BUYING THESE IS A BUNCH OF HEDGE FUNDS AND THE GOVERNMENT WITH ITS BORROWING COSTS, IF THEY BUY THEM AT MARKET, THEY WILL REALIZE A SIGNIFICANT PROFIT OVER TIME. I WOULD LOVE TO HAVE ONE PERCENT OF THE ACTION. I CAN'T AFFORD ANY MORE THAN THAT. THE KEY IS BUYING AT MARKET PRICES.

Talk about selective editing.

Why don't you actually watch the whole video...

 

[IHateMyJob2004]

Originally posted by: mshan

Quick: YOU KNOW, WE'VE HAD PEOPLE CALL IN BRINGING UP THIS QUESTION, IF THIS IS SUCH A GREAT DEAL FOR THE AMERICAN TAXPAYER, WHY ISN'T WARREN BUFFETT INVOLVED IN THAT AS WELL. WHAT DO YOU SAY TO THAT?

Buffett: I DON'T HAVE 700 BILLION. WE WOULD BUY AT MARKET PRICES, WE WOULD BUY THE MORTGAGE DEBT IF WE HAD THE BORROWING CAPACITY OF THE GOVERNMENT. IF WE COULD DO THE DEAL THAT IS AVAILABLE TO THE UNITED STATES GOVERNMENT AND HAVE STAYING POWER, WE WOULD MAKE SIGNIFICANT MONEY. IF THEY BUY THE ASSETS AT MARKET PRICE, I WOULD LOVE TO HAVE 1% OF THE PROFIT OR LOSS THAT RESULTS FROM BUYING THESE ASSETS FROM TROUBLED FINANCIAL INSTITUTIONS.THEY'RE COMPETITION IN BUYING THESE IS A BUNCH OF HEDGE FUNDS AND THE GOVERNMENT WITH ITS BORROWING COSTS, IF THEY BUY THEM AT MARKET, THEY WILL REALIZE A SIGNIFICANT PROFIT OVER TIME. I WOULD LOVE TO HAVE ONE PERCENT OF THE ACTION. I CAN'T AFFORD ANY MORE THAN THAT. THE KEY IS BUYING AT MARKET PRICES.

He doesn't say fair market prices, he says "at market prices...", over and over again.

It's a very careful and specific caveat. And again, it depends upon what specifically you are buying...

At market prices? So, whatever the institutions have them valued at right now? Market prices on things that are not highly liquid is what the next person is willing to pay. That would mean, at most the gov't should pay the price that the various companies have things marked at?

It gets a little confusing as to what "at market prices" really means.

 

[mshan]

Discount to intrinsic value (again market price, not intrinsic value over time), buying at firesale prices because you've got a seller that has to sell now. Basically, much closer to $0.30 on the nominal dollar that decent stuff has actually sold for, rather than hypothetical $0.65 on dollar bill Gross says would yield 10% or so profit over time.

And again, it depends upon what you are particularly buying (some is good, some is bad, and some will always be total crap, even if you wait till the end of time).

 

[IHateMyJob2004]

It's also interesting that he said that he has been in communication with people that are voting on this bill. Granted he kept them anonymous. This guy has earned the aura around him. He carries himself in a way that anyone should be proud to mimic.

 

[IHateMyJob2004]

Originally posted by: mshan
Discount to intrinsic value (again market price, not intrinsic value over time).

And again, it depends upon what you are particularly buying (some is good, some is bad, and some will always be total crap, even if you wait till the end of time).

I would not be the one with the task of assigning values.

 

[mshan]

Unfortunately, something does need to be done in the next couple weeks, and this bailout will probably just calm the global credit markets / stock markets over till after the elections.

Then real hard decisions and a real rescue plan will have to be developed.

This is nothing more than the mother of all golden parachutes from the most corrupt administration in history to their real constituents, and hopefully Congress will at least limit the max that Paulson can dish out, with no retrospective oversight available, to $250 billion.

 

[Jhhnn]

Shee-it, Sherlock- if the banks could survive selling at current market prices, they'd do so, and no bailout would be required.

But that's not what's happening, is it?

No, no it's not. Taxpayers will end up taking a loss, now matter how rosy the claims to the contrary. How big a loss is another question- will we lose 20% of that $700B, or 80%, or some figure in between? Anybody who's in the position to make a really educated guess isn't speaking up, that's for sure, so I suspect it's more towards the high end...

 

[mshan]

Some commentator on CNBC Asia web-stream (free and on right now at CNBC website) just said whole mess could have probably been cleaned up for $200 billion, if they had dealt with it effectually last fall.

 

[LegendKiller]

Originally posted by: mshan
Closer to 30 cents on dollar than 65 cents on dollar, as PIMCO's Bill Gross says they are supposedly worth over time.. (i. e. if you really are trying to make money, or at least break even, over time, you pay much closer to 30 cents than 65 cents. And you totally stay away from the toxic waste investment banks have tucked away in SIVs in the Cayman Islands).

And it really depends on specific cr*p you're buying? Florida or California vintage 2006? The stuff investment banks have tucked away in the Cayman Islands? Or good stuff (i.e. houses really worth 65% of face value and not too heavy a mix of really poor risk mortgages).

Much of the SIV debt is on BS, that happened months ago.

 

[Jhhnn]

Originally posted by: mshan
Some commentator on CNBC Asia web-stream (free and on right now at CNBC website) just said whole mess could have probably been cleaned up for $200 billion, if they had dealt with it effectually last fall.

Yeh, and if pigs had wings, they'd fly.

I could go on with a lot of "if's", back to the establishment of the Greenspan Put wrt LTCM in 1998, and beyond, but none of it really matters now except as an object lesson in what not to do in the future...

The sad truth is that very little of the "growth" since the dot-bust has had any basis in reality, but rather in financial and fiscal flimflammery orchestrated from the top down...

 

[tvarad]

Originally posted by: mshan
Some commentator on CNBC Asia web-stream (free and on right now at CNBC website) just said whole mess could have probably been cleaned up for $200 billion, if they had dealt with it effectually last fall.

Which in CNBCspeak means that he's talking down the deal because there's money to be made in such a statement, not because it's necessarily true.

Anyone who watches CNBC for their financial news ought to have his or her head examined. They're the Pravda of WallStreetSSR.

 

[mshan]

Honestly, by the way he is talking, sounds like he was prodded to buy by whomever (Obama campaign, Congress or government in general), to generate confidence.

$3 Billion is nothing for him, and he's obviously got the balance sheet to absorb a loss, so he can go first and hopefully others will follow.

And on Charlie Rose, Buffett again said "at market price": http://www.cnbc.com/id/15840232?video=874837951&play=1

 

[PokerGuy]

Originally posted by: Jhhnn
Shee-it, Sherlock- if the banks could survive selling at current market prices, they'd do so, and no bailout would be required.

But that's not what's happening, is it?

No, no it's not. Taxpayers will end up taking a loss, now matter how rosy the claims to the contrary. How big a loss is another question- will we lose 20% of that $700B, or 80%, or some figure in between? Anybody who's in the position to make a really educated guess isn't speaking up, that's for sure, so I suspect it's more towards the high end...

I'm not a big fan of the bailout, but I disagree with your logic. The reason that banks are not able to sell the securities at a reasonable price is that there simply are not any buyers with the financial capacies + time horizon that the US government has. If a private buyer had the capacity to raise that kind of capital and had a long time horizon to recoup the investment, they'd do it, that's what Buffet was saying.

 

[LegendKiller]

Originally posted by: mshan
Honestly, by the way he is talking, sounds like he was prodded to buy by whomever (Obama campaign, Congress or government in general), to generate confidence.

$3 Billion is nothing for him, and he's obviously got the balance sheet to absorb a loss, so he can go first and hopefully others will follow.

And on Charlie Rose, Buffett again said "at market price": http://www.cnbc.com/id/15840232?video=874837951&play=1

Why pay a dollar more for what you can get at market. He's a value investor, it's not surprising. He wouldn't look at it from an egalitarian perspective, nor saving the country's or the world's economy, he's looking at it from his own enrichment.

As mentioned earlier, his cost of funds is far higher than the gov't.

You guys are really grasping.