Wednesday, October 1, 2008

Buffett wants to invest in TARP?

In an interview just now on CNBC, Warren Buffett indicated that he would be willing to invest 1% (or 7 billion) along side the government in the Troubled Asset Relief Program (TARP). But, only if the government paid fair value for the assets that are auctioned off by the distressed financial institutions. You can be sure this news is sending shutters through the executive suites at multiple banks as they are clearly positioning/lobbying to dump these assets on the taxpayer at inflated prices. There is no doubt that some financial institutions will have significant writedowns and potential liqudity issues if the government pays fair value or establishes a clearing price(The government should let Buffett set the clearing price! He clearly got very good terms from GS and GE and the taxpayer should get similar terms). But, this has to be the price of admission. A Buffett investment in TARP would be very good news for the broader financial markets (excluding bank stocks) as it would thaw the credit market freeze, improve investor confidence, and protect the US taxpayer.

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