Buffett's Bailout Bonanza

From Charles Piller in the Scaramento Bee:
Billionaire investor Warren Buffett has been lauded for his plainspoken denunciation of the greed and foolishness behind the economic crisis. He's pushed the massive federal bailout of imploding banks as the essential response to an "economic Pearl Harbor."
When Buffett speaks, people in high places listen. He's so highly regarded that in a fall debate, both presidential candidates said they'd consider him for Treasury secretary.
A Sacramento Bee examination of regulatory records has found that his extensive holdings in financial firms have made Buffett, the world's second-wealthiest person behind Microsoft Chairman Bill Gates, one of the top beneficiaries of the banking bailout.
Just 28 companies received more than 90 percent of the funds so far disbursed to financial firms by the $700 billion Troubled Asset Relief Program.
Buffett's company, Berkshire Hathaway, hasn't received any of that federal aid, but Berkshire, based in Omaha, Neb., owns stock valued at more than $13 billion in the top recipients of TARP funds, including Goldman Sachs Group, US Bancorp, American Express and Bank of America, which analysts all thought were in deep trouble before TARP was approved in October.
That total, The Bee found, ranks Berkshire fifth among all investors in TARP-assisted companies. Berkshire's TARP holdings constitute 30 percent of its publicly disclosed stock portfolio, and that proportion reflects at least twice as much dependence on bailed-out banks as any other large investor.
Berkshire, for instance, is the largest shareholder in San Francisco-based Wells Fargo, which got $25 billion — 91 percent of the TARP funds invested in institutions headquartered in California.
Buffett increased his bank holdings in September, while he was arguing in the media that Congress should approve the bailout to prevent the collapse of the global financial system.
"If I didn't think the government was going to act, I would not be doing anything this week," Buffett told CNBC after investing $5 billion in Goldman Sachs. "I am, to some extent, betting on the fact that the government will do the rational thing here and act promptly."
The more the bailout props up these financial companies, the more secure Berkshire's and other shareholders' investments in them are. Berkshire shares have risen sharply with the financial sector stock rally in recent weeks, but they're still down nearly 40 percent since September. In Friday trading, they closed at $92,490 a share. . . .
Buffett, whose company is also the largest investor in Goldman Sachs and American Express, declined to be interviewed. In a February letter to Berkshire shareholders, he said that without government intervention, the consequences for the economy would have been "cataclysmic." . . .
Experts agree that preserving a functional banking system, TARP's goal, benefits everyone. In dispute is whether the bailout was the fairest and best approach.
Some say that large shareholders such as Buffett have been the primary, and perhaps only significant beneficiaries of TARP. Bank stocks have recovered significantly in recent weeks — Goldman's share price has more than doubled since November — and no TARP bank has failed.
Critics, however, worry that TARP propped up Wall Street against bankruptcy at the expense of taxpayers. The Treasury Department expected TARP to get loans flowing again, but the market has barely thawed, and unemployment has surged. . . .
When told of The Bee's findings, Robert Kuttner, the author of a recent best-seller on the economic crisis, said they reveal a bailout program designed out of public view, and one that "reeks of favoritism and special treatment."
"TARP was designed that way," Kuttner said, "to concentrate power with almost no effective oversight. That, to me, is the scandal."
The lack of clear criteria for awarding TARP funds continued after the recent change in government, according to Kuttner and other experts.
"The Obama administration said it would offer transparency and openness. But the single most important thing they are doing is being done largely behind closed doors, and the design is by, for and in the interest of large banks, hedge funds and private equity companies," he said. "Because there are no explicit criteria, it's very hard to know if a Citigroup or a Goldman got special treatment."
The Bee's findings follow a recent controversy over some Buffett holdings that may have contributed to the economic crisis.
Berkshire owns more than 20 percent of Moody's, a top credit rating agency, making it by far the largest stakeholder. Moody's has been faulted for enabling the global crisis by overvaluing mortgage assets.
Although Buffett has been outspoken about the need for government intervention in the crisis caused by the mortgage meltdown, he's said nothing publicly about the role of a company in which his firm is a minority holder.