This morning I tweeted about what an incredibly good deal Buffett managed to strike for his investment in Goldman (10% dividend, 100% in-the-money warrant coverage). But I am wondering about the interaction between his deal and the bailout. Somehow I don’t think Buffett would have done this deal if he thought it could go terribly wrong based on political risk. That would means he either thinks that the bailout will get approved and work or that he thinks Goldman Sachs at the price he got is a good deal no matter what happens with the bailout. He may be betting on the former given the Paulson - Goldman Sachs connection. But if it’s the latter, then it puts a serious question mark behind why we would do the government bailout in the first place, at the very least in the proposed structure. Seems to me that the government could structure Buffett-like deals for itself to provide equity to other viable financial institutions and let the rest fail. I think Congress ought to consider having Buffett testify under oath about his investment rationale before making any final decisions on the bailout.
